Trade Policies and Regional Integration in Africa

The trend towards concluding regional and bilateral trade agreements to promote trade and development has gained momentum worldwide. Participation in some form of Preferential Trade Agreement (PTA) has increased within the last 20 years, with the number of active PTAs rising from 70 in 1990 to almost 300 in 2011. African countries have concluded a considerable number of agreements among themselves (24 PTAs in force) but there is no evidence of a growing number of PTAs between Africa and its emerging partners in the Americas or in Asia (although four PTAs were concluded with West Asia and three with East Asia in 2010). Some African countries belonging to the group of African, Caribbean and Pacific (ACP) countries have signed  Economic Partnership Agreements (EPAs) with the European Union (EU), making Europe the region outside Africa with the highest number of agreements with African countries (16) (WTO, 2011).

Progress in the Economic Partnership Agreements (EPAs) remained limited throughout 2011. However, in September 2011, the European Commission announced plans to remove trade preferences arising from the Market Access Regulation by January 2014 in the event of countries not ratifying and implementing their respective EPAs, thus potentially losing some preferential access to EU markets. At present only half of the 36 nations which have initialled EPAs have proceeded towards ratification . Least Developed Countries (LDCs) will continue to benefit from duty-free and quota-free (DFQF) access under the auspices of the Everything but Arms (EBA) scheme, low‑income countries (LICs) and lower middle-income countries (LMICs) will remain as beneficiaries of the Generalised System of Preferences (GSP), but Botswana and Namibia, being upper middle-income countries, will be excluded from each initiative in the absence of ratification (International Centre for Trade and Sustainable Development [ICSTD] and European Centre for Development Policy and Management [ECDPM], 2011). Outstanding issues continue to be causes of contention, with Africa insisting on the developmental aims of the EPAs, with ample policy space to further its industrialisation and structural transformation imperatives. Crucially, there is concern that a hasty conclusion of the agreements might impede Africa’s regional integration agenda, partly as a result of the different nature of country positions in the various regional groupings. The risk of an unfavourable impact of such a process on fostering the deeper integration of African economies calls for further reflection, as it is only through boosting intra-African trade, thereby exploiting economies of scale to hone Africa’s comparative advantage, that the continent can unlock its potential and competitively situate itself in a strong position in the global economy. A faltering EPA process may further galvanise an already strengthening South-South relationship between Africa and the emerging economies, not least because of the minimal conditionalities associated.

Notwithstanding the high aspirations for concluding the Doha Development Round (DDA) by the year’s end, 2011 witnessed sluggish progress in the current status of negotiations. The Eighth WTO ministerial conference alluded to the need to redefine a new strategy for future negotiations premised on an “early harvest”. For Africa, these comprise, inter alia, DFQF access and rules of origin, cotton, special and differential treatment (S&DT), and deeper market access in agriculture, non-agriculture goods and services. Unless consensus is reached on an appropriate balance in the contributions and responsibilities between emerging and advanced economies, it is hard to see how negotiating nations can extricate themselves from the current impasse. On the crucial issue of cotton, the ministerial conference saw the C4 Group of African cotton producers (Benin, Burkina Faso, Chad and Mali) submit a proposal with the intention of freezing developed countries’ cotton subsidies at current levels, which was eventually not agreed upon. With respect to non-agricultural market access (NAMA), discussions on tariff-related issues are to resume in March, which is indicative of members’ commitment to the multilateral trade process. As always, African negotiators will continue to diminish the risks and maximise the gains in the consensus that they seek so as to ensure new issues are not reintroduced without definitively finalising current areas of negotiations and that developmental issues, in particular S&DT, remain at the heart of the agenda.

Intra-African average applied protection is still quite high at 8.7 per cent . However, the Sixth Ordinary Session of the African Union ministers of trade held in Kigali from 29 October to 2 November 2010 resolved to fast-track the establishment of a Continental Free Trade Area to remove tariffs on internally traded goods and services. The United Nations Economic Commission for Africa’s (UNECA) computable general equilibrium modelling of a continental FTA suggests a 51.7% increase in the share of intra-African trade between 2010 and 2022. If customs procedures and port handling became twice as efficient in a continental FTA, the share of intra-African trade would even double over the 12 year period, further reinforcing the need to address trade facilitation. (UNECA, forthcoming)

The increasing role of emerging economies, such as China, India and Brazil, in Africa’s trade and investment continued and intensified in 2011. This magnifies opportunities for deeper South-South co-operation aimed at advancing Africa’s market diversification and investment, especially considering the current plight confronting the economies of the United States and European economies. (UNECA, 2011; Cheru and Obi, 2010; Eichengreen et al., 2010; Ajakaiye, 2006). In the light of the opportunities and challenges posed by recent dynamics, it is imperative that Africa assert itself and map out an articulate, long-term, national and regional strategy as to how best to frame its engagement with southern partners into a mutually reinforcing affiliation. It is as yet uncertain what African nations aspire to gain from the emerging economies, although the latter seem to know what they require from the former (Cheru and Obi, 2010). Strategic engagement in channelling southern Foreign Direct Investment (FDI) towards enhancing productive capabilities, upgrading infrastructure and magnifying co-operation in agriculture in a bid to boost the production of higher value-added agricultural products is vital. It is imperative that the “resource-for-infrastructure” trend witnessed in a number of African countries during the past decade go beyond such an exchange so as to incorporate upgrading the skills of the domestic workforce, local content requirements and, crucially, technology transfer. The ability of Africa to innovate and move up the developmental ladder is primarily contingent on its technological capabilities, and the lack thereof has negatively impacted on its competitiveness , constraining structural transformation and economic growth. Africa should therefore seize this opportunity by scaling up its efforts in this respect to maximise the potential benefits it can reap from deeper Southern engagement. Principally, political consensus amongst governments, business leaders, foreign investors and knowledge institutions is pivotal to devising a successful technology and innovation strategy. As crucial as the state is in this realm, governments must regard the private sector as a partner in strategic development goals. Unleashing the latter’s innovative essence is key, as it has long been powerless in the face of fiercely competitive regional and global markets. African governments ought to create more incentives to intensify the level of innovation and aid domestic firms in developing dynamic competitive advantages, as it is only in dynamic sectors, where labour productivity is rising through technical progress premised on enhanced skills and innovative efforts, that sustainable growth can be attained.

More evidence is emerging about the Aid for Trade (AfT) initiative’s impact. AfT to Africa rose by 21.2% in 2009, continuing its eight-year upwards trend, being the steadiest source of trade policy reform in Africa among developing regions. About 37% of total AfT disbursements (41% of commitments) were destined for Africa in 2009. There was considerable variation among African recipients. Moreover, recent research confirms that the initiative helps to increase trade (Helble et al. 2009), and significantly reduces trade costs in developing countries (Busse et al.  2011). However, Busse et al. (2011) also show that AfT flows need to be large enough to lower trade costs in the case of LDCs. In Africa, AfT contributes to diversifying exports and to improving trade competitiveness (Karingi and Leyaro, 2009).

As part of its mandate as an international organisation charged with the monitoring and evaluating of the Aid for Trade Initiative, UNECA has compiled evidence from African case stories submitted to the WTO’s third Global Review of Aid for Trade in July 2011 (UNECA, 2011). Of a total of 37 case stories submitted by African member states for the third Global Review on Aid for Trade 2011, 14 countries relate their case stories to the AfT category Trade Policies and Regulations. Among them, three case stories (Nigeria, Zambia and Zimbabwe) explicitly deal with trade facilitation issues, and all three have a regional dimension of trade facilitation. The Nigerian case study covers activities along the transit corridor shared with Benin which are part of wider efforts on behalf of ECOWAS to improve trade along the Lagos-Abidjan transit corridor. Its approach involved the creation of an inclusive forum, the Task Force on Trade Facilitation, which effectively engages all relevant stakeholders and strengthens ownership of the project. Zimbabwe and Zambia each submitted a case story on their shared experiences with the Chirundu one-stop border post, an initiative under the COMESA-EAC-SADC (Common Market for Eastern and Southern Africa-East African Community-South African Development Community) agreement to improve inter and intra-REC trade. The three approaches describe efforts to lower cross-border trading costs with concrete objectives such as reducing the documentation and time in transit and streamlining procedures and systems. They function as examples for trade facilitation mechanisms which are relevant for many other African countries. In the light of Africa’s recent efforts to boost intra-African trade, identifying areas in which AfT funds can directly contribute to such an endeavour is imperative.

Best practices emerging from the third global review include effective national co-ordination or implementation mechanisms, private sector engagement, ownership by partner countries and donor commitment. On the other hand, factors causing problems are project management difficulties, problems on the partner country side, inadequate funding, as well as the lack of bankable AfT projects which meet AfT funding criteria, thereby compromising the financing of potential projects at both national and regional levels. Some progress is being observed on monitoring and evaluation, a key issue for AfT effectiveness. However, there is room for improvement on raising accountability, identifying inefficiencies and raising the impact AfT can potentially have by establishing adequate tools to assess and monitor progress in AfT project implementation and sustainability.