Building capacity to help Africa trade better

New thinking on African integration – reflecting on the 2014 tralac Annual Conference


New thinking on African integration – reflecting on the 2014 tralac Annual Conference

I would like to share with you some thoughts on African integration, following the conclusion of the 2014 tralac Annual Conference last week.

There is broad agreement that regional integration makes sense for Africa. The challenges of small markets, small economies, the geo-political configuration of the continent and the many land-locked countries make this, in my view, essential. The key question, however, is what should define a 21st century African integration agenda. That a regional integration agenda should deliver development outcomes, is the underlying premise. Otherwise, we’re wasting our time.

As regards the detail of the integration agenda, there is increasing focus and discussion of a ‘developmental regional integration’ agenda. This agenda is defined, by some experts involved in African integration matters, as an agenda that is anchored on three pillars; market integration, industrial development and associated policy coordination, and infrastructure development. The market integration agenda is to address market access issues, and this is a familiar marker of African regional integration. The market integration agenda has traditionally focused very much on trade-in-goods issues; and this continues.

Infrastructure development is an area where there is also broad agreement; it is difficult to contest Africa’s need for better infrastructure (roads, rail, energy and many more). Industrial development discussions are gaining traction in Africa, prompted to some extent by developments in commodities sectors, where debate about beneficiation and value addition and the promotion of regional value chains is coming to the fore. These issues have been, for a long time, on the integration agenda under a different banner – supply-side issues: they are important to increase our production capacity and competitiveness.

This high level definition of ‘developmental regional integration’ is persuasive; but it lacks the detail of a practical agenda that will address the challenges African economies and societies face in the 21st century. For example, what do we put on the negotiating agenda under this banner – as manifestation or expression of developmental regional integration, and perhaps even more important, how do member states, that are committed to developmental regional integration, shape their negotiation strategies to ensure that we move from the very captivating policy/political rhetoric of developmental regional integration to real development outcomes for Africa?

Who champions the developmental regional integration agenda; where are the regional hegemons, and what do we find when we examine their strategies for engaging their neighbours in regional integration initiatives? Are their strategies in sync with their avowed subscription to developmental regional integration?

Some of these issues were debated at the tralac Annual Conference (15-16 May 2014); some questions now need to be asked.

  • Market integration matters

Market integration, in particular a trade-in-goods agenda, is a hallmark of African integration initiatives, and the bedrock of the integration agenda of the regional economic communities (RECs). Negotiations to establish Free Trade Areas (FTAs) usually begin with tariff liberalisation negotiations. On this score, there are a number of issues to reflect on. There is an emerging debate about ‘policy space’; governments want policy space to use instruments to further their domestic agendas. The import tariff is a very visible and politically very popular trade policy instrument. An increase in the import tariff is often taken as a demonstration that government is responsive to its constituencies, those that want protection from import competition, but does not often reflect on who bears the cost of that tariff increase (consumers are still very passive about such policy impacts). The fact that the import tariff is quite unrelated to the real competitiveness issues, such as energy cost and supply (reflecting infrastructure, services and broader issues related to the role of government in key sectors either directly or through regulatory interventions) and cost and productivity of labour (reflecting education and labour market challenges), does not make headlines. The lack of debate about trade policy issues and the fact that governments are not held accountable for such decisions is part of the problem. In many countries the legislature is not able (in some cases lack of capacity is a serious problem) to hold the executive branch of government to account.

Key questions to ask about tariff liberalisation in FTA negotiations in Africa relate to the trade policy position and strategy of regional hegemons. It is access to the markets of these large African economies that could provide significant opportunities to boost intra-African trade. A good example comes from clothing trade in Africa [see a new tralac Working Paper here]. Many African countries have an interest in the clothing industry; they produce garments and could trade amongst themselves. However, this industry is also one where some of the large African countries are most reluctant to open their markets to trade with the neighbours; indeed, not only are they reluctant to reduce tariffs but market access is also constrained by complex rules of origin (RoO) in some FTAs. Ironically, the challenge of strict RoO for clothing products is also one which, for example South Africa, is battling in the context of the unilateral AGOA preferences and access to the markets of the United States. The third country fabric provision (put simply, flexibility that allows producers to source fabric from third party countries, make garments and export to the US under AGOA preferences), which countries defined as ‘least developed’ under AGOA enjoy, is what South Africa is keenly seeking. But in an African context, we are not seeing the impetus for such a similar, more flexible, RoO dispensation. A further irony is that many African countries import far more clothing from China than from other African countries; supporting China’s job creation endeavours rather than effectively working through the regional trade agenda towards some of its stated developmental regional integration aims, such as boosting intra-African trade and building regional value chains.

These examples testify to very bold mercantilist approaches to regional integration by key players, not a developmental regional integration agenda.

It is also important to keep in mind that when it comes to trade negotiations to conclude FTAs in the region, many African countries do have experience and expertise related to tariff negotiations. After all, we have been engaged in such negotiations for decades, and our trade-in-goods negotiators have honed their expertise. While building capacity in such technical areas is definitely important to improve the quality of trade policy making, negotiations and implementation, there is also another side to the story. In some countries, senior officials, who are the trade negotiators, enjoy significant policy space. Lack of oversight within Ministries of Trade, perhaps even at Cabinet level; lack of oversight by parliaments; and absence of debate among stakeholders provide policy space for these officials. They may have a vested interest in the agenda that they know best; thinking out of the box is not within their comfort zone, and this may indeed contribute to the lack of innovative or new thinking about Africa’s regional integration agenda. There are no rules that say FTA negotiations have to begin with tariff liberalisation; different sequencing of agenda items is possible.

If senior officials are not likely to have an interest in new thinking about Africa’s integration agenda, then where will the impetus come from? Interesting lessons from the Asian experience indicates that the role of the private sector could be key – this should be a focal point for thinking creatively about regional integration. In Asia, the flag follows trade; not the other way around as it still is in Africa, with state-led integration initiatives. If we leave this very important task of shaping a 21st century African integration agenda to states, we may miss the opportunities that the growth prospects supported by Africa’s new discoveries of its endowments offer at present.

A major rethink of our regional integration agenda is necessary; for decades already it has been recognised that non-tariff barriers (NTBs) have very pernicious effects on intra-regional and integration, raising the costs of doing business. High level policy statements about adopting ‘comprehensive programmes’ to reduce and eliminate NTBs are common; indeed provisions to this effect are found in all of Africa’s regional integration instruments. However, while such statements are important, they are not enough. We know what the specific NTBS are; some of the notable ones are related to customs and border procedures, and standards (SPS and TBT). We continue lamenting the situation; how can the problems be solved? The costs of the NTBs are borne to a large extent by traders, producers and consumers in the region. Innovative ways of resolving disputes related to NTBs, that provide private parties with channels to find resolution to these problems, is a priority. The recent Polytol case (although it relates to a tariff issue rather than an NTB) is important to review. A small firm in Mauritius challenges its government regarding the re-introduction of import tariffs that it had reduced according to its commitments in the COMESA FTA, and gets a ruling in its favour in the COMESA Court of Justice. Although the case is now being appealed by the government of Mauritius, it provides hope for solutions to real regional integration problems; such as compliance and implementation of regional agreements. Member states of RECs have committed to the elimination of NTBs; the fact that they are still snarling up intra-regional trade needs to be contested.

  • Infrastructure development

The fact that the purpose of developing infrastructure is to connect African economies, traders, producers, workers and jobs, and to lower the costs of doing business to boost competitiveness, is key. This makes a regulatory reform agenda, linked to the infrastructure development agenda, imperative. The oft-quoted impact of different axle load limits across countries is a classic example. We can build new roads, but unless we address such (minor sounding, in some cases) practical regulatory issues, it’s akin to leaving potholes in those new roads. This very obvious, and to some extent naïve example, points to a very important lesson and that is that infrastructure development is not about infrastructure per se, but very much about infrastructure services (with emphasis on services). Access to quality, reliable, and competitively priced services (e.g., transport) is about the physical infrastructure, but even more so about the regulations that govern those sectors. These regulations cover a gamut of issues such as access, quality (standards), as well as price. These are the concerns of a competitiveness agenda, and should feature very prominently in the regional integration agenda.

The current focus on Africa’s infrastructure development provides an important opportunity to address fundamental aspects of the continent’s services and competitiveness agenda. Manufacturing competitiveness is absolutely contingent upon competitively-priced, quality, accessible, reliable supply of services such as transport, communication and energy; while the foundation of that competitiveness is found in a range of other services such as education and health. These are fundamental parameters surely of a developmental regional integration agenda; because after all, the direct link from services to development outcomes cannot be contested. If a child in a rural area becomes ill, communication, transport and health care services are imperative. Without quality education, a child’s future as a productive African citizen is severely circumscribed.

What can be done? The support for liberalisation of trade in services, just as it seems to be in the case of trade in goods, is currently weak. But careful reflection and new thinking about a services agenda could open opportunities for regulatory reform, which could support significant development and competitiveness improvements. We are, however, in many senses captive to the WTO services agenda of the General Agreement on Trade in Services (GATS). This very logically appealing construct of modes of supply (1,2,3,4) dominates our thinking about a trade in services agenda (which includes focus on domestic regulation in addition to market access issues). In Africa, we’ve seen many South African (and of late many other) services suppliers establish commercial presence (mode 3) in many other African countries without any preferential trade in services agreements in place or indeed without extensive commitments undertaken under the GATS. Commercial presence details (incentives, concessions included) were in some cases probably negotiated across a table with senior officials, politicians and even Heads of State. This raises many serious governance issues that run counter to a development regional integration agenda on many scores, including transparency, accountability and more.

Can we chart a different and more appropriate developmental regional integration supporting services agenda for Africa? Starting with a regulatory reform agenda linked to Africa’s infrastructure development agenda could be worth exploring. There will be dissenting voices; vested interests in the ‘business as usual’ agenda, who may also invoke concerns about WTO commitments in the GATS. There are already, fortunately, good examples of exploring new avenues in many modern FTAs that we can learn from.

This not a comprehensive treatise on regional integration matters, or issues that could prompt new thinking and define a new agenda – but some thoughts on an agenda which is increasingly being cast under the banner of ‘developmental regional integration.’ Who does not support developmental regional integration? This is the easy part – the devil is in the detail.

At this stage, what we need is not more high level policy/political rhetoric about developmental regional integration, but a very pragmatic appraisal of what Africa needs in the 21st century, given the challenges and especially the opportunities of recently discovered resources and the associated high growth rates (any discussion about the quality of growth, sustainability, total factor productivity analysis?).

What does this mean for our most ambitious integration project yet – the Continental Free Trade Area (CFTA)*? It would be a pity if we use the same mould for this enormously important African initiative. Adopting the Tripartite FTA model may mean that this initiative becomes bogged down in an agenda that pays lip service to many good things but uses blunt 20th century instruments and policy approaches rather than the instruments that modern African business and other stakeholders need so that Africa becomes pivotal in the global economy of the 21st century, and most important, that we achieve developmental regional integration of a still-divided continent.

Trudi Hartzenberg

Executive Director, tralac

* More reflection on the CFTA to follow in another installment.


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