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The road to an integrated Africa

There has been talk for many years on the vision for an integrated Africa.

Nesbert Ruwo

The integration of the continent has now become an important item on the African Union’s agenda.

AU leaders last week concluded their biannual summit after endorsing a 10-year implementation plan for the bloc’s “Agenda 2063”, the vision for an integrated, prosperous, and peaceful Africa. The plan spells out the need for facilitating free movement of goods and people.

An Action Plan for Boosting Intra-African Trade, which paved the roadmap for establishing the Continental Free Trade Area (CFTA) by 2017 was agreed upon at the 18th ordinary AU session in 2012. This month the tripartite agreement between Sadc, the East African Community (EAC) and the Comesa was signed to adopt the negotiating guidelines and roadmap for the creation of the African Continental Free Trade Area (CFTA) by 2017.

CFTA targets to integrate 26 African countries within the Comesa-EAC-Sadc blocs. The bloc is expected to help boost intra-regional trade and ease movement of people between countries in the region.

The 26 countries within the CFTA have a combined GDP of $1,3 trillion and a population of 625 million people, that is, close to two thirds of the AU’s GDP and population. It is estimated that intra-African country trade accounts for sub-15% of the continent’s trade. CFTA is expected to boost that trade.

There are eight regional economic blocs on the continent (Sadc, Comesa, EAC, Ecowas, Economic Community of Central States [ECCAS], Arab Magreb Union [UMA], Community of Sahel-Saharan States [CEN-SAD], and Intergovernmental Authority of Development [IAD]) but the success of these is a subject for debate. EAC is said to be one of the most successful blocs on the continent.

A regional trading bloc is a form of economic integration in which a group of countries within a geographical region protect themselves from imports from non-member countries.

There are several types of trading blocs. Preferential Trade Areas exist when countries within a geographical region agree to reduce or eliminate tariff barriers on selected goods imported from other members of the bloc. This is often the first step towards the creation of a trading bloc.

A free trade area (FTA) is created when two or more countries in a region agree to reduce or eliminate barriers to trade on all goods coming from other members. In a customs union, member states agree to removal of tariff barriers and acceptance of unified external tariffs against non-members.

The most advanced form of integration is a common market in which member countries trade freely in all economic resources — goods, services, financial and human capital as well as reduce or eliminate tariff and non-tariff barriers. This level of integration requires harmonisation of key policies such as economic, monetary, and industrial policies.

While the initiatives towards an integrated Africa is a good starting point, there are a number of challenges that the continent has to deal with. These include political ideological differences encompassing sovereignty issues, logistical and infrastructure inadequacies and prohibitive cost of moving goods between countries.

The economic potential for Africa is undoubtedly huge but the economies on the continent have varying levels of income and development which makes it difficult to come up with coordinated infrastructure investment programmes, such as investment in energy pools and intra-regional transport systems.

Another hurdle to consider is the relationship between the envisaged CFTA and the regional FTAs. How will the modalities of the CFTA account for the existing bilateral and multilateral trade agreements between regional FTAs and individual member countries with third parties like the EU under the economic partnership agreements and bilateral investment treaties?

The deadline of 2017 to implement the CFTA seems to be very ambitious given the complexity of the negotiations and issues to deal with.

A decade ago, the EU incorporated 10 new members from the Baltics, the Central Europeans, Cyprus and Malta.

This enlarged the EU to 25 diverse countries. There were fears that the size and diversity of members would make the bloc ungovernable. Stronger economies like Germany feared that labour migration and cheap competition would undermine their economies.

Populist economies feared losing their sovereignty to more powerful economies. The EU, however, has been successful, boasting the largest economic region in the world. 

The EU was awarded the Nobel Peace Prize 2012 for its contribution to the “advancement of peace and reconciliation, democracy and human rights in Europe”.  For some member countries, like Ireland, it has been a huge success. For others, adapting to a single currency and marketplace has been a challenge.

Notwithstanding the success of the EU, it is not been without challenges — there are serious income disparities between the richer and poorer members, growth in the region post the 2008 financial crisis has been anaemic. There is also the Greece debt crisis that has the potential to disrupt the bloc’s standing. And the UK has been on the brink of exiting the bloc.

Africa can learn from this and other experiences of other regional blocs in regions such as Eastern Europe, Latin America, and East Asia which have had vastly different experiences with regional trade and enjoyed varied levels of success.

A Cargenie Endowment publication (2010) identifies key lessons from these regions that can help all middle-income countries to achieve full growth potential in their quest for full integration.

The lessons that could be considered by Africa include minimising political and ideological differences among participating countries, coordinating monetary and fiscal policies, and coordinating efforts to improve the quality of infrastructure.

Given the diversity of African countries, adopting these lessons will be a huge task. However, a journey of a thousand kilometres begins with a single step.
Nesbert Ruwo (CFA) and Jotham Makarudze (CFA) are investment professionals based in South Africa. They can be contacted on media@opportunvest.co.za

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