Economic Cooperation And Regional Integration Poli
Transcript Of Economic Cooperation And Regional Integration Poli
AFRICAN DEVELOPMENT BANK AFRICAN DEVELOPMENT FUND
ECONOMIC COOPERATION AND REGIONAL INTEGRATION POLICY
February 2000
TABLES OF CONTENT1
Page
1. Introduction…………………………………………………….…………….
1
1.1 Background……………………………………………………………….
1
1.2 Objective of the Policy …………………………………………………..
2
1.3 Organization of the Policy Paper………………… …………………………… 2
2. Trends in Africa’s Regional Integration Efforts
3
2.1 Rationale for Economic Cooperation and Regional Integration…….
3
2.2 Performance………………………… ……………………………………
4
2.3 Africa’s Renewed Interest in Regional Integration …………………….
5
3. Bank Group Experience in Promoting Regional Integration. . …..
9
3.1 Introduction ……………………………………………………………….
9
3.2 Collaboration with Other Regional Institutions…………………………
9
3.3 Integration and Investment Studies
..
9
3.4 Multinational Investments
.
10
3.5 Assessment of Experience to-date and Lessons … ………………..
11
4. Guiding Principles of Bank Group Policy on Economic Cooperation and
Regional Integration.
13
4.1 Guiding Principles ……………………………………………………...
13
Open Regionalism ……………………………………………..…….
13
Private Sector Participation……………………………………………..
14
Progressive Integration Using Bottom up and Variable Geometry Approaches 14
Encouraging Member Countries to Support Regional Integration Initiatives 15
Addressing the Compensation issue…… …………………………. .
15
Rationalizing Regional Integration Activities……… ………………….
16
Promoting Collaborative Work with Other Institutions…………… ….
17
Promoting Regional Cooperation on Cross-cutting Themes
18
5. Areas of Intervention and Implementation Strategy ………….…….
19
5.1 An Overview………………………………………………………………
19
5.2 Areas of Focus and Strategy……………………………………………
19
Policy Based Operations…………………………………………….. .
19
Co-operation in Regional Infrastructural Projects… …………. …… .
20
Private Sector Promotion……………………… …………………….
21
Building and Strengthening Capacity………………………… …… ..
22
Ensuring Sustainable Development………………………………….. .
23
6. Conclusions and Recommendations…………….……………. …….
24
6.1 Conclusions………………………………………………………………..
24
6.2 Recommendation…………………………………………………………
25
1This paper has been prepared by a Task Force comprising: Messrs. M. Amdiss, OCDW, Chair; F.O. Ndukwe, OCOD, Task Manager/Vice Chair; F. Razafindramanana, OCDC; G. Kambou, OCDE; S. Sesay, OCDN; .A.O. Jeng, OCDS; Y. Vyas, OESU; Mrs. A. Orraca-Ndiaye, OCPU; and, Mrs. O.E. Whyche, OPSD.
AADFI ADB ADF ACM AEC Afrexim Bank AMSCO AMU APDF ASEAN BDEGL BOAD CBI CCD CILSS CEAO/WAEC CEMAC CEPGL CFA CIMAO CINERGIE COMESA CPA EAC EADB ECA ECOWAS EU FECA IGGAD IGOs IOC IMF ICZM IWRM MRU NAFTA NGOs NTF OAU OHADA OMVG OMVS PTA PTCI
SACU SADCC
i
LIST OF ACRONYMS
Association of African Development Finance Institutions African Development Bank African Development Fund African Common Market African Economic Community African Export/Import Bank African Management Services Company Arab Maghreb Union Africa Project Development Facility Association of Southeast Asian Nations Development Bank of Great Lakes States Bank for West African Development Cross Border Initiative Convention to combat Desertification Permanent Inter-State Committee for Drought Control in the Sahel West African Economic Community Central African Economic and Monetary Union Economic Community of the Great Lakes Countries African Financial Community West African Cement Mill Regional Integration promotion Unit for West and Central Africa Common Market for Eastern and Southern Africa Country Performance Assistance East African Community East African Development Bank Economic Commission for Africa Economic Community of West African States European Union Federation of African Consultants Intergovernmental Authority on Drought & Development Inter-Governmental Organizations Indian Ocean Commission International monetary Fund Integrated Coastal Zones Management Integrated Water Resources Management Mano River Union North American Free Trade Area Non Governmental Organizations Nigeria Trust Fund Organization of African Unity Organization for the Harmonization of Business Law Gambia River Basin Development Organization Senegal River Development Organization Preferential Trade Area for Eastern and Southern African Inter-University Graduate Training Program in Economics for Francophone Africa South African Customs Union Southern African Development Co-ordination Conference
ii
SADC SAR RAN RASCOM RI UDEAC UEMOA UMOA UNDP
Southern African Development Community Southern African Region Regie Abidjan-Niamey Intra-African Satellite Communication System Regional Integration Central African Customs and Economic Union West African Economic and Monetary Union West African Monetary Union United Nations Development Programme
GLOSSARY OF TERMS
Common Market
An economic market of an integration unit where, in addition to the free flow of goods and non-factor services and the adoption of a common external tariffs, factors of production also move freely within the market.
Customs Union
An integration arrangement in which intra-trade barriers are removed among members and a common external tariffs (CETs) are imposed on imports from non-members.
Economic Union
A common market in which the members' national economic policies on trade, monetary, fiscal and welfare are harmonized.
Economies of scale A process (production, marketing, distribution) which exhibits a declining average unit cost over a particular range of output or units sold.
Free trade area
An integration arrangements in which all tariff restrictions among participating countries are removed but each country retains its own national tariff barriers against non-members.
Growth triangles
Trans-national economic zones spread over relatively large, but well-defined, geographically adjacent areas in which differences in the factor endowments of three or more countries are exploited in order to promote external trade and direct investment. Growth triangles are also referred to as sub-regional economic zones
Import substitution
A set of policies which, as a common objective, aims to substitute domestically produced goods and services for imported goods and services. Under this policy framework restrictive barriers are imposed on targeted imports.
Open regionalism
An integrating region which maintains an outward trade policy with the rest of the world; through economic liberalization, regional and global market interactions are encouraged.
Regionalism
Preferential trading agreements among a subset of countries.
iii
Trade creation
Increased trade at lower unit in an integration arrangement resulting from the substitution of inefficient (higher-cost) domestic production by specialization-induced more efficient regional partner country production.
Trade diversion
Shifts in trade flows from low-cost, non-member countries, to member countries in response to tariff discrimination produced by the formation of a customs union.
Variable geometry
An integration process which recognizes and encourages a core of very committed members of an integrating unit/region to proceed with deeper integration at a faster pace than the less committed with built-in flexibility for lagging members to voluntarily join the core, implement the necessary reforms and share the benefits and costs of deeper integration.
Economic Cooperation and Regional Integration Policy
I. INTRODUCTION
1.1 Background
1.1.1
The fragmentation of Africa into many nation states with scant economic coherence led African leaders, following political independence, to embrace regional integration as a central element of their development strategy. The small size and primary production structure of the typical African economy provided the rationale for pursuing mutually beneficial economic cooperation and regional integration particularly among adjacent states.
1.1.2
Under the import-substitution model, which characterized development strategy during the 1960s, African countries saw opportunities for economies of scale in production and trade from a larger regional economy. There was also a strong desire to overcome the industrialization-retarding hub and spoke production and trade patterns that these countries inherited from their colonial past. Regional integration was, therefore, viewed as a vehicle for achieving efficient industrialization with dynamic neighborhood effects and regional spillovers. In order, therefore, to realize these benefits from integration, African countries, during the 1960s and up to the mid-1980s, enthusiastically established a wave of regional and sub-regional organizations.
1.1.3
Apart from the economic motivations, Pan African political aspiration for continental identity, unity and coherence also influenced the early drives for regional integration in Africa. The pursuit of these ideals derive mainly from the desire to overcome the vestiges of Africa’s colonial past which led to the political and economic fragmentation of the continent. Over time, this political aspiration for African unity has reinforced the desire for regional and inter-regional economic cooperation as integral building blocks for continental cooperation and economic development.
1.1.4
However, in spite of the enthusiasm for and creation of a large number of regional integration organizations, African economies continue to be constrained by political boundaries, marginalized, and remain un-integrated into the rapidly globalizing world economy. Responding to the poor outcome of their initial integration efforts, African countries are showing renewed interests in developing appropriate frameworks for integration in order to realize the benefits of enlarged markets with the attendant opportunities for economic transformation, growth and sustainable development.
1.1.5
The facilitation of economic cooperation and regional integration is an integral part of the mandate and goal of the African Development Bank (ADB) to promote economic growth and development in Africa. The Agreements establishing the ADB, the African Development Fund (ADF) and the Nigerian Trust Fund (NTF) explicitly enjoined them, inter alia, “to contribute to economic and social development of regional members – individually and jointly and to assist the Bank in making an increasingly effective contribution to the economic and social development of the Bank’s member countries and to the promotion of
2
cooperation (including regional and sub-regional cooperation…”. Accordingly, since its establishment, the Bank has undertaken several initiatives, including the financing of studies and other operations aimed at the enhancement of regional integration of African economies. In the process, the Bank has maintained close cooperation with regional integration organizations in Africa. It has further reaffirmed this commitment to the integration of Africa in its recently adopted strategic operational Vision/Niche Statement “A Re-invigorated Bank: An Agenda for Moving Forward” which underlines regional integration as one of the focal intervention areas of the Bank. In addition, under the recently completed Eighth Replenishment of ADF resources, the Deputies approved management’s request to earmark ten percent of the new resources for multinational projects/programs. A guideline outlining the modalities for using the earmarked resources is under preparation. This Economic Cooperation and Regional Integration Policy provides a formal framework for operationalizing the regional integration plank of the Vision to foster economic transformation, growth and poverty reduction in Africa.
1.2 Objective of the Policy
In support of the Bank’s overarching goal to assist member countries to achieve sustainable development and poverty reduction, this Economic Cooperation and Regional Integration Policy outlines a broad set of guiding principles which will underpin Bank Group strategy on economic cooperation and regional integration of African economies in a rapidly globalizing world economy. To permit the attainment of this objective, the Bank will draw from the experience of its past activities in support of integration and strengthen its on-going cooperation with regional integration organizations.
1.3 Organization of the Policy Paper
Section 2 reviews trends in regional cooperation and integration efforts in Africa since the attainment of independence during the 1950s and the 1960s. The section highlights the enthusiasm, but largely unsuccessful efforts, of African founding fathers to forge strong Pan African unity leading to continental economic integration. Furthermore, the section outlines the factors leading to the dismal outcome of earlier initiatives, underscores the rekindled interests in economic cooperation and regional integration and the elements of the new approaches. Section 3 gives an overview of past Bank Group efforts and initiatives aimed at enhancing regional cooperation and integration and highlights lessons from past experience that could guide future interventions. Section 4 presents the guiding principles of Bank Group’s regional integration and strategy. Section 5 outlines the Bank’s possible areas of intervention and the underlying approach. The final section provides a conclusion and makes recommendations. Annex I presents the Action Plan for the Policy.
3
II TRENDS IN AFRICA’S REGIONAL INTEGRATION EFFORTS
2.1 Rationale for Economic Cooperation and Regional Integration
2.1.1
Since attaining independence during the fifties and sixties, African countries have embraced economic cooperation and regional integration as part of a strategy for the structural transformation of Africa. The vision and commitment of African leaders to the ideals and principles of political and economic cooperation, as a means of mitigating the development constraints faced by many small-nation economies led them to, among other initiatives, create the Organization of African Unity (OAU) and the ADB in 1963 as instruments for fostering African development and unity. This commitment was later reiterated in the Lagos Plan of Action in 1980 and, subsequently, in the Abuja Treaty of 1991 which envisions the ultimate creation of the African Economic Community.
2.1.2
The desire to overcome the economic disadvantages of fragmentation gave rise to the establishment of a plethora of treaties and regional institutions whose overriding objective was the creation of self-reliant development of member states. These include, the Customs and Economic Union of Central Africa [UDEAC, (1964)] which later became the Central African Economic and Monetary Community (CEMAC); East African Community (1967-1977); the South Africa Customs Union [SACU, (1969)], the Southern African Development Coordinating Conference [SADCC, (1980)], which was later transformed into the Southern African Development Community [SADC, (1992) and Common Market for Eastern and Southern Africa, [COMESA, (1995)]; the West African Economic Community [CEAO, (1972)], the Economic Community of West African States [ECOWAS, (1975)] and the West African Economic and Monetary Union [UEMOA, 1994]; the Preferential Trade Area [PTA (1981)] which was later succeeded by COMESA in 1995; and, the Arab Maghreb Union [AMU (1989)]. In addition to this first tier of regional bodies, numerous sub-regional organizations have since been established.
2.1.3
In addition to the political objective of continental unity, African leaders also pursued regional integration in order to overcome three fundamental, development constraints characteristic of African economies, namely: (a) small size of the economies (b) the lack of structural complementarities as manifested in the narrow set of similar, low-value primary export products and basic minerals; and, (c) dependence on import of intermediate and final goods. Regional integration was viewed as offering opportunities leading to market expansion, economies of scale and diversification of the economic base. Consequently, economic cooperation and regional integration arrangements were established as protected regional markets offering expanded economic space for factors of production, industrial production and trade.
2.1.4
In the ensuing period, several organizational trading arrangements were established. The aspirations and mandates of these organizations varied and included: (i) free trade areas, such as the PTA, where barriers to trade are progressively removed among members while each member maintains its restrictive practices, including tariffs, against non-members; (ii) customs unions, as embodied in mandate of SACU, involving a common external tariffs
4
and the pooling and sharing of revenues generated from trade tariffs on imports; (iii) common markets, as envisaged under the COMESA charter, in which capital and labor join the free flow of goods and non-factor services among members states; and, (iv) economic unions, the eventual goal of UEMOA, involving common fiscal and monetary policies among members. These integration arrangements reflect varying degrees of deepening of integration with their associated benefits and costs to participating members.
2.2 Performance
2.2.1
Independent assessment of the impact of Africa’s initial efforts to integrate between 1960 and 1990 suggests that the expected benefits have eluded the continent. The participation of Sub-Saharan Africa and, indeed, the continent in world trade2, prior and following attempts to integrate, remains negligible at 2 percent (1990); in some areas, the level of participation has even declined. This compares to Asia’s share of World Trade of 16.2 percent in 1991; and, Latin America, 9 percent. Intra-regional trade has also remained low, amounting to only 6 percent of total foreign trade of African nations in 1990. A comparable proportion for Asia, including trade with Japan, was about 35 percent in 1991; 41 percent for the North American Free Trade Area (1990); and, 14.2 percent for the Central American Common Market area. Furthermore, intra-regional export trade within the major regional groupings in Africa has also been negligible. For example, between 1970 and 1990, trade within UDEAC declined from 2.9 percent to 2.1 percent; for the ECOWAS sub-region, the percentage fluctuated from 5.2 percent in 1985 to 8.3 percent in 1990 and to 7.2 in 1992. Only the CEAO sub-region showed a steady but modest increase, from 8.9 percent in 1980 to 10.5 percent in 1990.
2.2.2
Equally noteworthy is the absence of any significant change in the structure of African economies. Exports are still confined to basic minerals and primary products. There is no clear evidence of a causal link between the proliferation of regional and sub-regional institutions and the development of regional infrastructure. In spite of the latter’s enormous potential, its development has not progressed commensurate with the expected benefits.
2.2.3
The dismal outcome of Africa’s initial efforts to integrate can be attributed to the low level of structural complementarity of the economies. This, in turn, has inhibited expansion in production and opportunities for trade creation and led to unmet expectations about gains from integration. Several other factors have also contributed to the poor outcome. These include:
(i) Lack of political will to establish supranational institutions and to implement agreed treaties and mandates: African governments showed little desire to subordinate domestic political and economic interests to supranational institutions with long term regional goals. Consequently, there was a proclivity to create inter-governmental institutions with multiple and overlapping protocols and mandates and little enforceable mechanisms. In effect, national
2 From various sources but primarily from: “New Dimensions in Regional Integration”, Table 8.3, page 247; Publishers: Centre for Economic Policy Research, 1992; editors: Jaime De Melo and Arvind Panagariya
5
sovereignty and interests have often been placed ahead of long term regional goals. Furthermore, member states showed little commitment and enthusiasm to implement the mandates of their various sub-regional organizations;
(ii) Pursuit of Import substitution policies: These have led to the establishment of inefficient industries protected by high tariff barriers and the maintenance of overvalued exchange rate systems;
(iii) Heavy reliance on tariffs for fiscal revenue: this has stifled official inter- and intra-regional trade, encouraged parallel markets with rent-seeking characteristics. In a perverse way, this has also limited the scope for fiscal revenue expansion given the small size of each protected economy;
(iv) Over-ambitious goals of regional organizations coupled with unrealistic time frame for achieving these goals. This has led to unrealistic expectations concerning the gains from trade which, for the most part, were not met;
(v) Pervasive weaknesses in regional structures. This is exemplified by the existence of weak industrial structures and the absence of intra-industry linkages, which was compounded by poor or lack of transport and communication infrastructure and, except in the UEMOA and CEMAC areas, the non-convertibility of currencies in most countries;
(vi) Overlapping membership since most countries belonged to several regional groupings with duplicative mandates and structures, thus leading to inefficient use of resources;
(vii) Inadequate mechanisms for equitable sharing of the costs and benefits of regional arrangements, which ultimately eroded members’ commitment to and support for regional groupings.
(viii) antipathy to markets and state domination of production through pervasive and inefficient parastatals which depended on state subsidies;
(ix) lack of policy credibility resulting from vacillation and reversals in the implementation of reforms;
(x) endemic political instability which, in some cases, has led to debilitating civil conflicts;
(xi) lack of rule of law and good governance.
2.3 Africa’s Renewed Interest in Regional Integration
2.3.1
Notwithstanding the dismal outcome from the first generation of integration initiatives, African countries have, since the 1990s, shown renewed and keen interest in reinvigorating their integration efforts. This has, in part, been influenced, by rising trends of globalization and deepening regional integration with demonstrable gains in trade, investment and economic growth in Europe, North America and Asia at the same time that Africa was becoming more
ECONOMIC COOPERATION AND REGIONAL INTEGRATION POLICY
February 2000
TABLES OF CONTENT1
Page
1. Introduction…………………………………………………….…………….
1
1.1 Background……………………………………………………………….
1
1.2 Objective of the Policy …………………………………………………..
2
1.3 Organization of the Policy Paper………………… …………………………… 2
2. Trends in Africa’s Regional Integration Efforts
3
2.1 Rationale for Economic Cooperation and Regional Integration…….
3
2.2 Performance………………………… ……………………………………
4
2.3 Africa’s Renewed Interest in Regional Integration …………………….
5
3. Bank Group Experience in Promoting Regional Integration. . …..
9
3.1 Introduction ……………………………………………………………….
9
3.2 Collaboration with Other Regional Institutions…………………………
9
3.3 Integration and Investment Studies
..
9
3.4 Multinational Investments
.
10
3.5 Assessment of Experience to-date and Lessons … ………………..
11
4. Guiding Principles of Bank Group Policy on Economic Cooperation and
Regional Integration.
13
4.1 Guiding Principles ……………………………………………………...
13
Open Regionalism ……………………………………………..…….
13
Private Sector Participation……………………………………………..
14
Progressive Integration Using Bottom up and Variable Geometry Approaches 14
Encouraging Member Countries to Support Regional Integration Initiatives 15
Addressing the Compensation issue…… …………………………. .
15
Rationalizing Regional Integration Activities……… ………………….
16
Promoting Collaborative Work with Other Institutions…………… ….
17
Promoting Regional Cooperation on Cross-cutting Themes
18
5. Areas of Intervention and Implementation Strategy ………….…….
19
5.1 An Overview………………………………………………………………
19
5.2 Areas of Focus and Strategy……………………………………………
19
Policy Based Operations…………………………………………….. .
19
Co-operation in Regional Infrastructural Projects… …………. …… .
20
Private Sector Promotion……………………… …………………….
21
Building and Strengthening Capacity………………………… …… ..
22
Ensuring Sustainable Development………………………………….. .
23
6. Conclusions and Recommendations…………….……………. …….
24
6.1 Conclusions………………………………………………………………..
24
6.2 Recommendation…………………………………………………………
25
1This paper has been prepared by a Task Force comprising: Messrs. M. Amdiss, OCDW, Chair; F.O. Ndukwe, OCOD, Task Manager/Vice Chair; F. Razafindramanana, OCDC; G. Kambou, OCDE; S. Sesay, OCDN; .A.O. Jeng, OCDS; Y. Vyas, OESU; Mrs. A. Orraca-Ndiaye, OCPU; and, Mrs. O.E. Whyche, OPSD.
AADFI ADB ADF ACM AEC Afrexim Bank AMSCO AMU APDF ASEAN BDEGL BOAD CBI CCD CILSS CEAO/WAEC CEMAC CEPGL CFA CIMAO CINERGIE COMESA CPA EAC EADB ECA ECOWAS EU FECA IGGAD IGOs IOC IMF ICZM IWRM MRU NAFTA NGOs NTF OAU OHADA OMVG OMVS PTA PTCI
SACU SADCC
i
LIST OF ACRONYMS
Association of African Development Finance Institutions African Development Bank African Development Fund African Common Market African Economic Community African Export/Import Bank African Management Services Company Arab Maghreb Union Africa Project Development Facility Association of Southeast Asian Nations Development Bank of Great Lakes States Bank for West African Development Cross Border Initiative Convention to combat Desertification Permanent Inter-State Committee for Drought Control in the Sahel West African Economic Community Central African Economic and Monetary Union Economic Community of the Great Lakes Countries African Financial Community West African Cement Mill Regional Integration promotion Unit for West and Central Africa Common Market for Eastern and Southern Africa Country Performance Assistance East African Community East African Development Bank Economic Commission for Africa Economic Community of West African States European Union Federation of African Consultants Intergovernmental Authority on Drought & Development Inter-Governmental Organizations Indian Ocean Commission International monetary Fund Integrated Coastal Zones Management Integrated Water Resources Management Mano River Union North American Free Trade Area Non Governmental Organizations Nigeria Trust Fund Organization of African Unity Organization for the Harmonization of Business Law Gambia River Basin Development Organization Senegal River Development Organization Preferential Trade Area for Eastern and Southern African Inter-University Graduate Training Program in Economics for Francophone Africa South African Customs Union Southern African Development Co-ordination Conference
ii
SADC SAR RAN RASCOM RI UDEAC UEMOA UMOA UNDP
Southern African Development Community Southern African Region Regie Abidjan-Niamey Intra-African Satellite Communication System Regional Integration Central African Customs and Economic Union West African Economic and Monetary Union West African Monetary Union United Nations Development Programme
GLOSSARY OF TERMS
Common Market
An economic market of an integration unit where, in addition to the free flow of goods and non-factor services and the adoption of a common external tariffs, factors of production also move freely within the market.
Customs Union
An integration arrangement in which intra-trade barriers are removed among members and a common external tariffs (CETs) are imposed on imports from non-members.
Economic Union
A common market in which the members' national economic policies on trade, monetary, fiscal and welfare are harmonized.
Economies of scale A process (production, marketing, distribution) which exhibits a declining average unit cost over a particular range of output or units sold.
Free trade area
An integration arrangements in which all tariff restrictions among participating countries are removed but each country retains its own national tariff barriers against non-members.
Growth triangles
Trans-national economic zones spread over relatively large, but well-defined, geographically adjacent areas in which differences in the factor endowments of three or more countries are exploited in order to promote external trade and direct investment. Growth triangles are also referred to as sub-regional economic zones
Import substitution
A set of policies which, as a common objective, aims to substitute domestically produced goods and services for imported goods and services. Under this policy framework restrictive barriers are imposed on targeted imports.
Open regionalism
An integrating region which maintains an outward trade policy with the rest of the world; through economic liberalization, regional and global market interactions are encouraged.
Regionalism
Preferential trading agreements among a subset of countries.
iii
Trade creation
Increased trade at lower unit in an integration arrangement resulting from the substitution of inefficient (higher-cost) domestic production by specialization-induced more efficient regional partner country production.
Trade diversion
Shifts in trade flows from low-cost, non-member countries, to member countries in response to tariff discrimination produced by the formation of a customs union.
Variable geometry
An integration process which recognizes and encourages a core of very committed members of an integrating unit/region to proceed with deeper integration at a faster pace than the less committed with built-in flexibility for lagging members to voluntarily join the core, implement the necessary reforms and share the benefits and costs of deeper integration.
Economic Cooperation and Regional Integration Policy
I. INTRODUCTION
1.1 Background
1.1.1
The fragmentation of Africa into many nation states with scant economic coherence led African leaders, following political independence, to embrace regional integration as a central element of their development strategy. The small size and primary production structure of the typical African economy provided the rationale for pursuing mutually beneficial economic cooperation and regional integration particularly among adjacent states.
1.1.2
Under the import-substitution model, which characterized development strategy during the 1960s, African countries saw opportunities for economies of scale in production and trade from a larger regional economy. There was also a strong desire to overcome the industrialization-retarding hub and spoke production and trade patterns that these countries inherited from their colonial past. Regional integration was, therefore, viewed as a vehicle for achieving efficient industrialization with dynamic neighborhood effects and regional spillovers. In order, therefore, to realize these benefits from integration, African countries, during the 1960s and up to the mid-1980s, enthusiastically established a wave of regional and sub-regional organizations.
1.1.3
Apart from the economic motivations, Pan African political aspiration for continental identity, unity and coherence also influenced the early drives for regional integration in Africa. The pursuit of these ideals derive mainly from the desire to overcome the vestiges of Africa’s colonial past which led to the political and economic fragmentation of the continent. Over time, this political aspiration for African unity has reinforced the desire for regional and inter-regional economic cooperation as integral building blocks for continental cooperation and economic development.
1.1.4
However, in spite of the enthusiasm for and creation of a large number of regional integration organizations, African economies continue to be constrained by political boundaries, marginalized, and remain un-integrated into the rapidly globalizing world economy. Responding to the poor outcome of their initial integration efforts, African countries are showing renewed interests in developing appropriate frameworks for integration in order to realize the benefits of enlarged markets with the attendant opportunities for economic transformation, growth and sustainable development.
1.1.5
The facilitation of economic cooperation and regional integration is an integral part of the mandate and goal of the African Development Bank (ADB) to promote economic growth and development in Africa. The Agreements establishing the ADB, the African Development Fund (ADF) and the Nigerian Trust Fund (NTF) explicitly enjoined them, inter alia, “to contribute to economic and social development of regional members – individually and jointly and to assist the Bank in making an increasingly effective contribution to the economic and social development of the Bank’s member countries and to the promotion of
2
cooperation (including regional and sub-regional cooperation…”. Accordingly, since its establishment, the Bank has undertaken several initiatives, including the financing of studies and other operations aimed at the enhancement of regional integration of African economies. In the process, the Bank has maintained close cooperation with regional integration organizations in Africa. It has further reaffirmed this commitment to the integration of Africa in its recently adopted strategic operational Vision/Niche Statement “A Re-invigorated Bank: An Agenda for Moving Forward” which underlines regional integration as one of the focal intervention areas of the Bank. In addition, under the recently completed Eighth Replenishment of ADF resources, the Deputies approved management’s request to earmark ten percent of the new resources for multinational projects/programs. A guideline outlining the modalities for using the earmarked resources is under preparation. This Economic Cooperation and Regional Integration Policy provides a formal framework for operationalizing the regional integration plank of the Vision to foster economic transformation, growth and poverty reduction in Africa.
1.2 Objective of the Policy
In support of the Bank’s overarching goal to assist member countries to achieve sustainable development and poverty reduction, this Economic Cooperation and Regional Integration Policy outlines a broad set of guiding principles which will underpin Bank Group strategy on economic cooperation and regional integration of African economies in a rapidly globalizing world economy. To permit the attainment of this objective, the Bank will draw from the experience of its past activities in support of integration and strengthen its on-going cooperation with regional integration organizations.
1.3 Organization of the Policy Paper
Section 2 reviews trends in regional cooperation and integration efforts in Africa since the attainment of independence during the 1950s and the 1960s. The section highlights the enthusiasm, but largely unsuccessful efforts, of African founding fathers to forge strong Pan African unity leading to continental economic integration. Furthermore, the section outlines the factors leading to the dismal outcome of earlier initiatives, underscores the rekindled interests in economic cooperation and regional integration and the elements of the new approaches. Section 3 gives an overview of past Bank Group efforts and initiatives aimed at enhancing regional cooperation and integration and highlights lessons from past experience that could guide future interventions. Section 4 presents the guiding principles of Bank Group’s regional integration and strategy. Section 5 outlines the Bank’s possible areas of intervention and the underlying approach. The final section provides a conclusion and makes recommendations. Annex I presents the Action Plan for the Policy.
3
II TRENDS IN AFRICA’S REGIONAL INTEGRATION EFFORTS
2.1 Rationale for Economic Cooperation and Regional Integration
2.1.1
Since attaining independence during the fifties and sixties, African countries have embraced economic cooperation and regional integration as part of a strategy for the structural transformation of Africa. The vision and commitment of African leaders to the ideals and principles of political and economic cooperation, as a means of mitigating the development constraints faced by many small-nation economies led them to, among other initiatives, create the Organization of African Unity (OAU) and the ADB in 1963 as instruments for fostering African development and unity. This commitment was later reiterated in the Lagos Plan of Action in 1980 and, subsequently, in the Abuja Treaty of 1991 which envisions the ultimate creation of the African Economic Community.
2.1.2
The desire to overcome the economic disadvantages of fragmentation gave rise to the establishment of a plethora of treaties and regional institutions whose overriding objective was the creation of self-reliant development of member states. These include, the Customs and Economic Union of Central Africa [UDEAC, (1964)] which later became the Central African Economic and Monetary Community (CEMAC); East African Community (1967-1977); the South Africa Customs Union [SACU, (1969)], the Southern African Development Coordinating Conference [SADCC, (1980)], which was later transformed into the Southern African Development Community [SADC, (1992) and Common Market for Eastern and Southern Africa, [COMESA, (1995)]; the West African Economic Community [CEAO, (1972)], the Economic Community of West African States [ECOWAS, (1975)] and the West African Economic and Monetary Union [UEMOA, 1994]; the Preferential Trade Area [PTA (1981)] which was later succeeded by COMESA in 1995; and, the Arab Maghreb Union [AMU (1989)]. In addition to this first tier of regional bodies, numerous sub-regional organizations have since been established.
2.1.3
In addition to the political objective of continental unity, African leaders also pursued regional integration in order to overcome three fundamental, development constraints characteristic of African economies, namely: (a) small size of the economies (b) the lack of structural complementarities as manifested in the narrow set of similar, low-value primary export products and basic minerals; and, (c) dependence on import of intermediate and final goods. Regional integration was viewed as offering opportunities leading to market expansion, economies of scale and diversification of the economic base. Consequently, economic cooperation and regional integration arrangements were established as protected regional markets offering expanded economic space for factors of production, industrial production and trade.
2.1.4
In the ensuing period, several organizational trading arrangements were established. The aspirations and mandates of these organizations varied and included: (i) free trade areas, such as the PTA, where barriers to trade are progressively removed among members while each member maintains its restrictive practices, including tariffs, against non-members; (ii) customs unions, as embodied in mandate of SACU, involving a common external tariffs
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and the pooling and sharing of revenues generated from trade tariffs on imports; (iii) common markets, as envisaged under the COMESA charter, in which capital and labor join the free flow of goods and non-factor services among members states; and, (iv) economic unions, the eventual goal of UEMOA, involving common fiscal and monetary policies among members. These integration arrangements reflect varying degrees of deepening of integration with their associated benefits and costs to participating members.
2.2 Performance
2.2.1
Independent assessment of the impact of Africa’s initial efforts to integrate between 1960 and 1990 suggests that the expected benefits have eluded the continent. The participation of Sub-Saharan Africa and, indeed, the continent in world trade2, prior and following attempts to integrate, remains negligible at 2 percent (1990); in some areas, the level of participation has even declined. This compares to Asia’s share of World Trade of 16.2 percent in 1991; and, Latin America, 9 percent. Intra-regional trade has also remained low, amounting to only 6 percent of total foreign trade of African nations in 1990. A comparable proportion for Asia, including trade with Japan, was about 35 percent in 1991; 41 percent for the North American Free Trade Area (1990); and, 14.2 percent for the Central American Common Market area. Furthermore, intra-regional export trade within the major regional groupings in Africa has also been negligible. For example, between 1970 and 1990, trade within UDEAC declined from 2.9 percent to 2.1 percent; for the ECOWAS sub-region, the percentage fluctuated from 5.2 percent in 1985 to 8.3 percent in 1990 and to 7.2 in 1992. Only the CEAO sub-region showed a steady but modest increase, from 8.9 percent in 1980 to 10.5 percent in 1990.
2.2.2
Equally noteworthy is the absence of any significant change in the structure of African economies. Exports are still confined to basic minerals and primary products. There is no clear evidence of a causal link between the proliferation of regional and sub-regional institutions and the development of regional infrastructure. In spite of the latter’s enormous potential, its development has not progressed commensurate with the expected benefits.
2.2.3
The dismal outcome of Africa’s initial efforts to integrate can be attributed to the low level of structural complementarity of the economies. This, in turn, has inhibited expansion in production and opportunities for trade creation and led to unmet expectations about gains from integration. Several other factors have also contributed to the poor outcome. These include:
(i) Lack of political will to establish supranational institutions and to implement agreed treaties and mandates: African governments showed little desire to subordinate domestic political and economic interests to supranational institutions with long term regional goals. Consequently, there was a proclivity to create inter-governmental institutions with multiple and overlapping protocols and mandates and little enforceable mechanisms. In effect, national
2 From various sources but primarily from: “New Dimensions in Regional Integration”, Table 8.3, page 247; Publishers: Centre for Economic Policy Research, 1992; editors: Jaime De Melo and Arvind Panagariya
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sovereignty and interests have often been placed ahead of long term regional goals. Furthermore, member states showed little commitment and enthusiasm to implement the mandates of their various sub-regional organizations;
(ii) Pursuit of Import substitution policies: These have led to the establishment of inefficient industries protected by high tariff barriers and the maintenance of overvalued exchange rate systems;
(iii) Heavy reliance on tariffs for fiscal revenue: this has stifled official inter- and intra-regional trade, encouraged parallel markets with rent-seeking characteristics. In a perverse way, this has also limited the scope for fiscal revenue expansion given the small size of each protected economy;
(iv) Over-ambitious goals of regional organizations coupled with unrealistic time frame for achieving these goals. This has led to unrealistic expectations concerning the gains from trade which, for the most part, were not met;
(v) Pervasive weaknesses in regional structures. This is exemplified by the existence of weak industrial structures and the absence of intra-industry linkages, which was compounded by poor or lack of transport and communication infrastructure and, except in the UEMOA and CEMAC areas, the non-convertibility of currencies in most countries;
(vi) Overlapping membership since most countries belonged to several regional groupings with duplicative mandates and structures, thus leading to inefficient use of resources;
(vii) Inadequate mechanisms for equitable sharing of the costs and benefits of regional arrangements, which ultimately eroded members’ commitment to and support for regional groupings.
(viii) antipathy to markets and state domination of production through pervasive and inefficient parastatals which depended on state subsidies;
(ix) lack of policy credibility resulting from vacillation and reversals in the implementation of reforms;
(x) endemic political instability which, in some cases, has led to debilitating civil conflicts;
(xi) lack of rule of law and good governance.
2.3 Africa’s Renewed Interest in Regional Integration
2.3.1
Notwithstanding the dismal outcome from the first generation of integration initiatives, African countries have, since the 1990s, shown renewed and keen interest in reinvigorating their integration efforts. This has, in part, been influenced, by rising trends of globalization and deepening regional integration with demonstrable gains in trade, investment and economic growth in Europe, North America and Asia at the same time that Africa was becoming more