Discussions
Is developmental regionalism a coherent paradigm for African integration?
Sean Woolfrey, tralac Researcher, discusses UNCTAD’s 2013 Economic Development in Africa report, raising concerns about the ability to turn its goals and principles into action
Earlier this month the United Nations Conference on Trade and Development (UNCTAD) released the 2013 edition of its annual Economic Development in Africa Report. The theme of this year’s Report is “Intra-African Trade: Unlocking Private Sector Dynamism”, and the Report itself makes for interesting reading as, among other things, it synthesizes current thinking on efforts to boost intra-African trade and to promote regional integration on the continent. In particular, the Report stresses the need for an alternative approach to regional integration in Africa – which it terms ‘developmental regionalism’ – and outlines the broad features of this approach and how it could be applied in Africa. The Report also argues that a lack of productive capacity constrains the expansion of intra-African trade and “should be given as much attention by African policymakers as the elimination of trade barriers”.
Much has been made in recent times about the need for African countries to increase their trade with each other. Arguments for a concerted focus on boosting intra-African trade emphasise the fact that intra-African trade tends to contain a higher proportion of manufactured goods than African countries’ overall trade and that fast-growing economies and a rapidly expanding middle class in Africa present significant opportunities for African manufacturers, especially given the geographical advantages they have in supplying these markets. These arguments also stress the need for African countries to diversify their export markets so as to reduce their reliance on the markets of their traditional trading partners.
The UNCTAD Report notes, however, that despite these arguments and a long history of efforts to foster intra-regional trade, intra-African trade remains low relative to intra-regional trade in other parts of the world. Reasons for this are many and complex and include factors such as the presence of numerous small countries on the continent, a high level of product concentration, the impact of competition from China and other countries in Asia, and an inability to fully implement regional integration agreements. Nevertheless, one of the central arguments of the UNCTAD Report is that levels of intra-African trade are low primarily because of the lack of productive capacity on the continent. Specifically, African economies lack competitiveness in terms of production and trade due to a number of factors including high production, administration and transportation costs, poor infrastructure, significant barriers to trade, small firm size, weak inter-firm linkages, and high levels of informality. The Report further argues that regional trade initiatives in Africa have tended to focus largely on the elimination of trade barriers and have consequently not done enough to address the lack of productive capacity on the continent.
In light of these shortcomings, the Report proposes the adoption of a “credible package to promote private sector development and boost intra-African trade”. Key elements of such a package would include: maintaining peace and security; fostering entrepreneurship and building productive capacity through, for instance, skills development and the expansion of access to financing; investing in infrastructure; establishing effective public-private dialogue mechanisms; and implementing existing regional integration agreements. In addition, the Report stresses the need to rethink current approaches to regional integration and to move away from linear-based approaches that focus on the removal of trade barriers, towards a “development-based approach, which pays as much attention to the building of productive capacity and private sector development as to the elimination of trade barriers”.
Given that traditional efforts to remove obstacles to intra-African trade have been insufficient to expand trade and deepen economic integration on the continent, the UNCTAD Report argues that “regional integration initiatives need to be designed and carried out within a broader development framework, which promotes economic diversification, structural transformation and technological development, thereby enhancing the productive capacities of African economies, realizing economies of scale, facilitating infrastructure development and supporting industrialization”. In other words, intra-African trade should be promoted through ‘developmental regionalism’.
According to the Report, developmental regionalism “encompasses cooperation in the area of trade, with an emphasis on the promotion of intraregional trade and integration into the global economy”, but also “goes beyond the domain of trade per se by including cooperation in other, more ambitious areas”, such as industrial policy, competition policy, infrastructure and investment, among others. In particular, the emphasis of developmental regionalism is on facilitating industrial restructuring and economic transformation through the implementation of “strategic” trade policies that are consistent with the domestic industrial policy frameworks of the states involved. Under developmental regionalism, “gradual and sequenced trade liberalization” is combined with policy actions, such as coordinated investments into regional transport infrastructure, in order to improve linkages between the states involved and enhance the productive capacities of the region.
The UNCTAD Report identifies four key “policy tools and drivers” for fostering developmental regionalism in Africa. The first driver of developmental regionalism is industrial policy, which, as the Report notes, is already being incorporated into regional integration initiatives in Africa through, for example, the regional industrial development policy of the East African Community (EAC) and the industrial development pillar of the Tripartite Free Trade Agreement being negotiated by the EAC, the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC). The second potential driver of developmental regionalism in Africa is the use of development corridors. In theory, these spatial development initiatives encourage intra-regional trade through linking markets. They also improve the productivity of local industries and economies by expanding and improving trade-related infrastructure.
The third key policy tool of developmental regionalism highlighted by the UNCTAD Report is the establishment of special economic zones (SEZs), which can serve both as platforms for supplying regional markets and as locations from which to source regional inputs. The fourth and final driver identified by the Report is the promotion of regional value chains. The Report argues that African countries should promote the development of regional value chains by investing in infrastructure and business support services as well as in broader policy areas such as education, innovation and technology. Regional value chains can provide local firms with access to foreign markets and inputs, thereby freeing them from the constraints of small domestic markets, and providing them with opportunities to benefit from economies of scale and ‘learning-by-doing’. The Report also notes that the development of regional value chains in Africa should form part of “an overall strategy to improve international competitiveness and integrate the continent into the global economy”.
There is much to be said for the approach outlined in the UNCTAD Report, and the broad emphasis on addressing constraints to productive capacity in Africa is both necessary and timely. In addition, the recommendations focusing on infrastructure investment, enhanced private sector participation, and the need to fully implement existing regional agreements are all eminently sensible. Nevertheless, the developmental regionalism paradigm outlined by the Report is not without its problems, and questions about its coherence remain, especially with respect to the specific policy tools and drivers highlighted in the Report.
For example, the approach assumes that national governments in Africa support efforts to promote regional industrial development. While this may be true at the level of political rhetoric and where regional industrial development does not conflict with national interests, when it comes down to the actual politicking and trade-offs inherent in the making of industrial policy, it is not clear that governments would be willing to put the interests of the region ahead of those of their own state. In addition, industrial policy generally involves decisions about the allocation of resources, and it is not clear who would make these decisions in a regional context.
Similarly, while regional cooperation may have a role to play where multiple neighbouring countries are making use of SEZs – for instance in harmonising rules, regulations and incentive structures relating to these zones – the logic of SEZs as industrial policy tools is not obviously aligned with the logic of regional integration. Furthermore, numerous SEZs and development corridors have already been established in Africa, and have, with a few exceptions, largely failed to yield the benefits that their proponents claim for them.
Finally, it is also unclear what exactly would be involved in efforts to develop regional value chains. If it is envisaged that particular tasks and production processes would be divided among regional partners, the question of who decides what is done where would become particularly contentious. It is also doubtful whether such an approach would be sensible given that contemporary regional value chains in East Asia and elsewhere arose largely through demand-side forces and the sourcing decisions of multinational companies, and not though top-down decision making by governments and bureaucrats. If, however, efforts to establish regional value chains focus on investments in infrastructure, skills development and other aspects of a conducive business environment, then it is not clear how exactly this differs from a broader approach to industrial policy and regional integration that does not emphasise the development of regional value chains.
As the UNCTAD Report notes, regional integration initiatives in Africa, such as the COMESA-EAC-SADC Tripartite Free Trade Agreement, are already moving towards developmental regionalism and away from an exclusive focus on the removal of trade barriers. Despite the concerns raised above, this approach may indeed prove to be a better way to promote intra-regional trade and economic development in Africa. What is clear, however, is that much thought still needs to be given to how to translate the goals and principles of developmental regionalism into concrete actions that yield tangible results for the region.
Sources:
United Nations Conference on Trade and Development (UNCTAD). 2013. Economic Development in Africa Report 2013. Intra-African Trade: Unlocking Private Sector Dynamism. Available at: http://www.tralac.org/images/docs/541/economic-development-in-africa-report-2013.pdf