How Could Regional Integration Initiatives Help This Dual Strategy to Succeed?

alone will not by themselves guarantee gains—unless they are accompanied by significant efforts in focused industrial, trade, and competition policies to take advantage of such opportunities.

How Could Regional Integration Initiatives Help This Dual Strategy to Succeed?

To succeed in the proposed dual strategy—boosting exports through preferential access to the EU and US markets and diversifying their market access to Asia—Sub-Saharan African countries would need to be better integrated and deepen trade with each other. Despite some progress in recent years, African countries still have thick trade barriers around their borders, which exacerbates the fragmentation inherited from colonization and makes Africa the continent most prone to ethnic-based conflicts. The region’s countries also have some of the smallest domestic markets in the world, except for the three resource-rich middle-income countries—Angola, Nigeria, and South Africa—and a few less-resource-endowed countries, such as Ethiopia.

Prospects for Africa’s Access to Global Markets: Policies and Challenges

Which policies can help overcome the triple disadvantage of low economic density, long distance to world and regional markets, and thick borders? The development experiences of the East Asia and Pacific region and, recently, South Asia make the answer clear: (a) use the advantage of low labor costs and a large domestic labor force that is perhaps just moving out of agriculture in search of employment; (b) provide political and macroeconomic stability; and (c) work closely with foreign investors to arrange for better local infrastructure and access to export routes. These policy lessons are actionable recommendations for national governments in many areas, such as the emphasis on bolstering investment in infrastructure and human capital and improving market and government institutions.

But various circumstances make it difficult for countries in Sub-Saharan African to replicate East Asia’s success by integrating globally:

• Relative size of populations, markets, workforces, and economies.

Most African countries are smaller than those in East Asia in population, size of the domestic consumer market, percentage of the labor force with a minimum primary education, and economic proximity to global markets or neighbors. For example, Sub-Saharan African countries have a median population of about 12 million, compared with 50 million in emerging Asia (excluding China and India). • Lagging competitiveness, scale, and connectivity. Global trade integration has advanced considerably since the 1960s, when the East

Asian Tigers began their dramatic rise. And global markets have become considerably more contested and production much more

segregated into tasks that require substantial economies of scale and excellent connectivity with trading partners. • Technological advances that weaken demand for low-cost labor. The relentless march of technology has reduced manufacturing employment and dampened the advantage of low-cost labor relative to capital. Policies to improve the endowment of capital thus need to be supplemented by regional efforts to create larger markets that cross borders and make Sub-Saharan African countries more attractive to foreign and domestic investors.

Efforts to Regionally Integrate Sub-Saharan African Economies Establishing, and Deepening, the AfCFTA

An initiative that can speed integration of the countries in Sub-Saharan Africa is the framework agreement establishing the AfCFTA, which was signed by 44 countries in Rwanda on March 21, 2018.8 As of October 2019, 54 countries had signed the AfCFTA Agreement, 40 had complied with their domestic requirements for ratification, and 34 of the 40 have ratified the agreement and deposited their instruments of ratification9—more than the number of ratifications required to put the FTA into effect. For the countries that deposited their instruments of ratification, the AfCFTA became operational in January 2021.

This means that Africa has put into operation the largest FTA in the world, in terms of membership, and it is expected to change the trade and investment framework of countries in the region going forward. The AfCFTA will help boost intraregional trade, strengthen the complementarities of production and exports, create employment, and limit the impact of commodity price volatility on the participants. Further negotiations are planned to cover investment, competition, and intellectual property rights.

Deepening the AfCFTA will be important. It will also be important for the countries that have not yet ratified the agreement and deposited their instruments thus far to join, to hasten the implementation for the whole region. Although the AfCFTA is a great recent development, Nigeria’s delayed signing of the agreement signals reservations in the political commitment of the region’s largest economy, which could constrain further integration efforts that require a high level of political commitment. Furthermore, member countries must avoid creating a trade area that provides a larger captive market without making their firms more competitive and readier to take on global markets. The approach to strengthening integration that is required for a successful AfCFTA should have three parts: improving physical integration, strengthening political cooperation, and facilitating business integration. The costs of distance and fragmentation can be reduced through intensive investment in these areas.

Leveraging RECs to Strengthen African Neighborhoods

Another way to help rekindle growth is to make Africa’s neighborhoods more vibrant, especially those that include the largest resource-rich countries. This could be done by granting all the countries in regional

groupings—such as ECOWAS, the SADC, and the Common Market for Eastern and Southern Africa (COMESA)—preferential access to leading world markets with attractive rules of origin, conditional on their taking the lead in promoting regional integration in West, Southern, and East Africa. This might require revisiting the US AGOA and the EU EBA programs.

In the spirit of the Group of Twenty (G-20) Compact with Africa,10 a complementary activity under the World Trade Organization (WTO) Aid for Trade initiative could help bolster investment in sectors other than natural resources, helping to build up non-resource exports from countries within neighborhoods (or RECs).

Coulibaly (2017) proposes pursuing a three-pronged strategy—(a) pick a model REC and help it succeed, (b) enroll the REC’s neighboring countries, and (c) stimulate competition with other RECs—that would trigger at least three channels of regional spillovers:

1. A distribution effect from the three resource-rich middle-income countries—Angola, Nigeria, and South Africa—to their regional economic partners would occur through trade in goods and services and cross-border movement of labor and capital searching for better opportunities. 2. A domino effect, helping countries close to the neighborhoods of these three middle-income countries to join the integration process, would enable those countries to take full advantage of the new economic opportunities generated by the coordination of foreign aid. 3. A demonstration effect would encourage other subgroups of countries to deepen their regional integration to take advantage of the coordinated G-20 Compact with Africa and WTO Aid-for-Trade initiatives.

Adopting New Models for International Commitments

The international community could also shift from bilateral trade agreements to contracts with African neighborhoods (natural trading partners that are close historically, sociologically and geographically)—specifically involving countries by neighborhood and development partner(s)—as an incentive for closer regional cooperation (Coulibaly 2017). For instance, the governments of the East, Central, Southern, and West African subregions could commit to the following: • Establishing African Economic Areas that would tie together the economic interests of leading and lagging countries in each regional neighborhood • Encouraging the free movement of labor, capital, goods, and services within these areas • Maintaining and protecting access routes between landlocked countries and outlets for trade as well as providing the political space to support investment in the regional infrastructure that is essential for the neighborhood.