Investing in Integration

 

Windhoek – Strong political will is the fillip that is needed to fast track Africa’s economic integration, an agenda item at almost every political and economic gathering on the continent, but whose facilitation and implementation still falls far short of expectations.

African government generally agree that they need to build internal capacity to buffer their narrowly diversified economies, whose growth is stymied by a weak manufacturing base and export of unprocessed commodities, from exogenous factors such as decline in demand and prices of commodities.

Integration of African economies to increase the economies of scale of especially markets with a weak consumer base, investing in cross border infrastructure projects, which will smoothen commerce between nations, eradicating non-tariff barriers (NTBs) and opening up borders to allow free movement of human capital across Africa, are some of the perceived gains of economic integration.

The calls for economic integration are increasingly becoming shrill as frustration mounts over African economies’ inability to open up for commerce among them.

Research has revealed that the bulk of infrastructure in most African economies, built during the colonial period, was solely meant to service the funnelling of the continent’s natural resources to feed the needs of the then industrialising Europe and the Americas.

Africa is still grappling with a huge infrastructure deficit in roads, rail, ports, airports, telecoms and many other physical contributors to connectivity.

This has made movement of goods and people around the continent very difficult and time consuming, riddled with security concerns and besieged by unreliable routes and onerous processes, analysts say.

Angola is one example, which clearly explains why Africa is unable to do commerce with itself. Angola is disconnected from the African countries east of it, with fewer road networks linking the country to other African countries.

Angola has no rail link to its African neighbours, making cross-border trade difficult or near impossible. Analysts say it is easier, and more profitable for Angola to trade with countries such as the US, Brazil, Portugal and China.

“Now is time for action. We have to make sure that we invest in the regional infrastructure and move them forward. Regional integration should not be narrowly understood, it is much broader than movement of people and goods. It is about creating jobs, allowing capital to move,” Mthuli Ncube, vice-president and chief economist at AfDB said at the African Economic Conference held in South Africa last week.

Frustration on the slow pace of integration was clearly evident at the AEC conference, partly sponsored by Economic Commission for Africa (ECA) and the United Nations Development Programme UNDP).

“Too often we are in these global meetings, but with minor voices and inability to project with a common agenda for what we want to achieve ourselves and in the global agenda,” Pravin Gordhan, South Africa’s finance minister lamented.

Analysts say that the flow of goods, services, capital, people and information between African economies is exceptionally low, compared with intra-regional flows in other parts of the world.

African economies’ inability to boost commerce across geographical boundaries is a binding constraint and a serious concern for the continent’s economic potential.

Researchers say that the cost of African countries trading amongst themselves is prohibitively high. For example, the cost of moving a container in Nigeria is five times the cost in Brazil and 10 times that in The Netherlands.

This has not been helped by the fact that African countries still produce overwhelmingly the same or similar goods at the same time of the year, offering little trade complementarity.

This has had the net negative result of African economies often finding themselves competing against each other with low degrees of differentiation in common external markets for goods and the same holds for foreign direct investment, analysts say.

The carrot approach, in terms of preferential market access, used by developed markets to African economies results in more goods flowing into those markets instead of neighbouring African countries. Investments from the developed economies are structured to facilitate stronger, low cost exports back to their markets, analysts say.

At the AEC conference, there was consensus that whilst most of the reforms need to facilitate trade have long been agreed upon under regional trade agreements, their implementation is a matter of political will.

“The emphasis is to put priority on the political dimension of integration. We want the African Union to put emphasis on that. Regional integration should not be seen as an event, it is a process and it is not just an economic process.

“Everybody has a role to play, the state and non-state actors. The leadership and political groups, as well as citizens and the private sector have to support the integration process,” Emmanuel Nnadozie, ECA’s director macro-economic policy division said.

“Africa needs to move forward in translating the political will into stronger economic integration,” Pedro Conceicao, UNDP chief economist also said.

The continent needs to find ways to raise US$93 billion annually, which is required to finance infrastructure projects in energy, transport, aviation, water and sanitation.

“Intra-Africa trade remains between 10-13 percent (of global) because of a lack of linkages between north, south, east and west (of Africa),” Lynette Chen, CEO of NEPAD Business Foundation said.

November 2013
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