Who invented the concept of regional trade agreements (RTAs)? Your immediate answers, let me guess: the Europeans (e.g. European Union)? The Americans (e.g. North America Free Trade Area, NAFTA)? The Asians (e.g. Asian-Pacific Economic Cooperation, APEC)?
You are absolutely wrong if you chose any of the above,. Believe it or not, the African continent has the longest history of regional economic cooperation. The Southern African Customs Union (SACU), founded in 1910, is the oldest trade union in the world. Today, Africa is home to more than 30 regional trade arrangements, such as the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), and the Economic Community of West African States (ECOWAS).[i] On average, each African country belongs to 4 regional trade blocs (IMF). The goal of cooperation is prosperity. Trade arrangements are made to help Africa benefit from economies of scale, stable foreign direct investment (FDI), diversified regional output and enhanced competitiveness. But, in the case of Africa, long history does not translate into effective policies and prosperity.
Instead, the continent is still far from achieving its visionary goals. Within COMESA, a large trade bloc with 19 southern and eastern African countries, intraregional trade accounted for only 7% of the bloc’s trade in 2005. Intraregional trade is only between 6% and 12% of trade from SADC and ECOWAS. This number is small compared to that of the Association of Southeast Asian Nations (ASEAN), where exchange among its 10 members account for 25% of the region’s trade.[ii]
Why have African RTAs failed?
Several organizational flaws contribute to the failure of regional economic cooperation. Firstly, regional trade blocs often have overlapping memberships. Countries in southern Africa can be members of both COMESA and SADC, while those in eastern Africa can be both members of the Eastern African Community (EAC) and COMESA. Although these regional organizations share a vision of free trade, they differ in their stage of development, scope of operations, time tables for liberalization and economic cooperation policies. For example, Kenya and Uganda are COMESA and EAC members. They adopted the EAC common external tariff (CET) structure of 0%, 10% and 25% in 2003. COMESA, however, proposed to adopt a different CET structure (0%, 5%, 15% and 30%) in 2005. The conflicts between the COMESA proposal and the existing system in EAC have stalled further discussion of CETs in COMESA. Zambia, Zimbabwe, Madagascar and Mauritius also face a similar problem. Their membership in SADC requires them to dismantle all tariff barriers to SADC countries, including South Africa. But COMESA requires them to exclude South Africa from preferential tariffs. Countries stuck between conflicting policies cannot agree with new policy initiatives and often delay decision-making. Policy enforcement is also impossible when conflicts exist. The credibility of regional organizations then erodes as nothing is accomplished. In the end, conflicting membership and the lack of policy harmonization become a major obstacle to regional integration.
Secondly, trade integration is limited, and intraregional trade activities have widened the economic gap among member countries. Regional agreements have opened up new markets for goods from larger and relatively more developed African countries such as Kenya, South Africa and Egypt. With a better developed industrial base, South Africa accounts for 77% of intra-SADC exports in 2002. Although intra-SADC trade has increased in absolute terms, South Africa’s has grown much faster. South Africa’s intra-SADC export trade is more than 8 times bigger than its import trade. Kenya and Egypt are also major beneficiaries of the COMESA Free Trade Area, a strategy ratified by 11 of the 19 member countries in 2000. Both countries account for 33% and 18% of intra-COMESA exports. Their larger export markets help to attract more investment as well and further enhance the country’s economic prospect.
On the other hand, it is much harder for small or landlocked countries to benefit from regional arrangements. Geographical factors limit the availability of natural resources and hence exclude them from commodities trade, leaving the state and the people too poor to develop agricultural and manufacturing capacity in their country. Therefore, although IMF data show that intra-regional trade is dominated by industrial and food products, the lack of industrial capacity rendered these countries less competitive than their richer and bigger neighbors. As a result, few small countries (perhaps with the exception of Swaziland) have reaped impressive benefits from interregional trade. It will be difficult to convince less developed members to further cooperative efforts unless African trade blocs can prove themselves beneficial to members of vastly different backgrounds.
Thirdly, the enforcement of free trade provisions is slow and inconsistent. Progress to reduce non-tariff barriers is particularly sluggish. The UN Commission for Africa estimates that exports and imports from African countries on average take 6 to 10 days to clear customs. This time frame is twice as long compared to that in Asia. Trade goods also suffer from multiple interstate roadblocks. The IMF claims that in West Africa, there can be 7 roadblocks per 100 kilometers. Other forms of internal barriers include the lack of transport and communications infrastructures on the continent. As long as trade barriers are few, internet and phone line services can help to increase market connectivity and hence improve export performance from even the smaller countries. Better quality of domestic transportation infrastructure can also boost market access.
Next Steps
Given the institutional flaws elaborated above, both intra- and inter-bloc efforts will be pertinent to create more credible institutions and better enforcement mechanisms. Such intra-bloc efforts will certainly include the further promotion of regional production networking, which will connect and strengthen the collective competitiveness of the regional organization. As for inter-bloc efforts, further negotiations will be crucial to achieve multilateral liberalization and to harmonize existing RTAs. In this respect, African leaders are still in dispute. For instance, the SADC plans to become an economic union by 2016 and COMESA hopes to become a customs union in 2008. There are other proposals to transform the African Economic Community (AEC), which will covers all African Union members, into an economic union by 2028. To add to this complex situation, the World Trade Organization forbids dual membership in customs unions. With these impending plans for economic convergence, African countries will also need to choose where they want to belong. The debate is still going on today.
Further reading:
Clarke, George R. Beyond Tariffs and Quotas: Why Don'T African Manufacturers Export More?. World Bank Group. 2004. 2 Dec. 2007 <http://www1.worldbank.org/rped/documents/wps0505.pdf>
Gibb, Richard. "Regional Integration in Post-Apartheid Southern Africa." Tijdschrift Voor Economische En Sociale Geografie 98 (2007): 421-435.
Khandelwal, Padamja. COMESA and SADC: Prospects and Challenges for Regional Trade Integration. International Monetary Fund. 2004. 2 Dec. 2007 <http://www.imf.org/external/pubs/ft/wp/2004/wp04227.pdf>.
"Regional Trade Agreements Gateway." World Trade Organization. 2 Dec. 2007 <http://www.wto.org/english/tratop_e/region_e/region_e.htm>.
"SADC-COMESA: Which Bloc?" Africa Research Bulletin (2007): 17509-17510.
State of Integration in COMESA. Common Market for Eastern and Southern Africa. 2007. 26 Sept. 2007 <http://www.comesa.int/publications/Multi-language_content.2007-06-08.5926/en>.
Yang, Yongzheng, and Sanjeev Gupta. Regional Trade Arrangements in Africa: Past Performance and the Way Forward. International Monetary Fund. 2005. 2 Dec. 2007 <http://www.imf.org/external/pubs/ft/wp/2005/wp0536.pdf>.
[i] The Common Market for Eastern and Southern Africa (COMESA) consists of 19 African states: Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. The Southern African Development Community (SADC) consists of 14 states: Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, United Republic of Tanzania, Zambia and Zimbabwe. The Economic Community of West African States (ECOWAS) consists of 16 countries: Benin, Burkina Faso, Cape Verde, Cote D’Ivoire, Gambia, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.
[ii] See http://www.aseansec.org/18137.htm for 2005 statistics. The Association of Southeast Asian Nations (ASEAN) consists of 10 Southeast Asian countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and VietNam.
