Download regional economic integration among african countries

AFRICAN REGIONAL
ECONOMIC INTEGRATION
ECON 3510 Carleton University
June 5, 2014
Source, Text, Chapter 19
Agenda
1. How does REGIONAL ECONOMIC
INTEGRATION Work?
2. Advantages and Potential Disadvantages
3. Forces promoting economic integration
4. Types of Integration Scheme
5. Africa’s Experience with Economic
Integration
6. Some Specific African Integration Schemes
1. How does REGIONAL ECONOMIC
INTEGRATION Work?
It makes possible productivity
improvements,
– i.e. it permits more output to be squeezed
out of given quantities of human, natural
and capital resources.
1. How does REGIONAL ECONOMIC
INTEGRATION Work?
It thus can contribute to
– increasing real incomes in a country, thereby
permitting
– improved human development by individuals
and families for themselves, and
– by governments through increased taxation
and social expenditures (health, education,
social security, infrastructure etc.)
1. How does REGIONAL ECONOMIC
INTEGRATION Work? Continued:
It increases the relevant size of the
market
A larger population, with greater purchasing
power
Permits a broader range of economic activities to
become established and to function efficiently
Especially relevant for Africa
It can also promote economic development
through
– strengthening the tax base of governments so that
– more can be invested in public goods or other
purposes directed more specifically at economic
development.
The economic expansion facilitated by economic
integration may make possible public investment in
safeguarding the environment – but maybe not..
Does Economic Integration promote stability and peace
among countries?
Evidence and argumentation pro:
Evidence contra:
How does Regional Economic Integration promote
productivity improvements?
How does Regional Economic Integration promote
productivity improvements?
1. Permits Implementation of Economies of Scale and
Consequent Resource Saving (human, natural and
capital resources):
– Larger plant size
– Larger enterprise size
– Increased length of “production runs”
– Increased intra-industry specialization
– Increased agglomerative economies.
These are some of the “dynamic benefits” of
improved rationalization of economic structure.
Recall: “Agglomerative Economies” (in large-scale
economic or market areas)
providing cost advantages of large urban scale to
producers, including
–
–
–
–
–
–
–
–
–
–
Developed infrastructure generally;
Developed transport infrastructure
Lower transport costs for inputs and outputs;
skilled labor pools;
availability of necessary inputs, repair services, etc.
government services and bureaucracy;
proximity to major markets;
diversified range of all economic activities
financial institutions, educational institutions
“amenities’ for citizens
2. Static Benefits: gains from comparative
advantage from trade creation
3. Impacts of Increased Competition within
the Integration Area:
– Stimulates domestic product quality improvement;
– Stimulates improvements in product quality and
reductions in production costs.
4. Expanded Market Size can Promote
Increased (and more efficient)
Investment.
5. Strengthened Ability for the Region to
develop successful “clusters” of economic
activities and thus to integrate and
compete in the international economy
6. Strengthened Ability for the Region to Face
External Competition for its own domestic
markets.
7. Reversing the historic fragmentation of the
continent into 55 countries, with the
economic disadvantages that this generates
These gains can be greatest for small
.country partners
2. POTENTIAL DISADVANTAGES OF
REGIONAL INTEGRATION
1.
Costs of Transition to Larger Markets:
Some industries or types of economic activity
may not be able to compete with imports.
The result is then labour displacement,
economic dislocation, and unemployment.
– Are these “costs” of economic integration
borne by the workers and enterprises
themselves, or does society share in their
burden?
– enterprise and industry restructuring costs;
2. Possible Longer Term Negative
Impacts:
– “agglomerative dis-economies” for
some regions or countries
– consequent loss of economic activity
and employment; (e.g. the Maritime
provinces in Canada?)
3. Trade diversion may harm some
partners
What is “Trade Diversion?
3. Forces behind the attempts to form
larger economic communities:
 Economic theory and argumentation
 Problems with ISI;
 Other regional integration experiences,
esp. the European Union, but
also the USA and Asian and L. American
Demonstration effects
 Political arguments:
– peace and stability and
– regional bargaining power
4. Types of Integration Scheme
1. Specific Functional Cooperation
Agreement to cooperate for specific purposes
(watershed management; transport, energy….)
2. Free Trade Area (FTA);
Lowering and elimination of trade barriers
between two or more countries; separate
tariff structures for the rest of the world
2. Customs Union (CU)
CU = FTA + Common External Tariff
4. Types of Integration Scheme, continued
3. Common Market (CM):
Common Market = CU + Factor Mobility (capital
& labour)
4. Economic and Monetary Union (EMU):
EMU = CM + Single Currency (monetary &Exchange
rate policy)
5. Political Union (PU)
Political Union = EMU + Common foreign and
security policy
Obstacles to Successful Integration
Achieving effective economic integration is
complex and politically difficult.
Why?
1. Vested interests of enterprise may object
due to fear of competition from neighbors
2. Political or philosophical differences among
neighboring countries
e.g. East African Community with Idi Amin,
Nyerere and Kenyatta
3. Trade Diversion may damage some
partners and induce them to leave
4. Distributional Issues: fear that some
countries gain disproportionately while
others lose
5. Weaknesses in the supranational
institutions
6. Infrastructural weaknesses
prevent meaningful economic
interaction
7. Unwillingness to sacrifice
national sovereignty for
supranational gains
8. Weakness of political will
5. Africa’s Experience with Economic
Integration
1. Early ambitious “Pan-Africanists” and
modest gradualists at Independence;
2. Leaders unwilling to sacrifice national
independence so soon after achieving it.
3. A gradualist approach for some time, but
with high “continentalist” aspirations
5. Africa’s Experience with Economic
Integration, continued
4. Major difficulties have hindered progress
5. Antagonisms among countries
6. Logistic Obstacles: Infrastructure Gaps
(see map)
Physical Magnitude of Integration Task
(see map)
African Economic Integration Schemes
1. Southern African Development Community (SADC)
2. East African Community (EAC)
3. Economic Community of West African States
(ECOWAS)
4. Economic Community of Central African States
(ECCAS)
5. Common Market for Eastern and Southern Africa
(COMESA)
6. Arab Maghreb Union (UMA)
7. Southern Africa's Common Monetary Area (CMA)
8. African Economic Community, (AEC)
African Intra-Bloc Exports
as a Per Cent of Total Exports
Integration
Scheme
COMESA
1970
1980
1990
2000
2007
9.1
6.1
6.6
6.0
4.7
EAC
16.9
8.9
13.3
17.6
20.4
ECCAS
2.2
1.4
1.4
1.0
0.6
ECOWAS
2.9
10.1
7.8
10.8
9.4
SADC
1.4
0.3
2.8
12.2
15.2
Source: Text, p. 490 and World Bank, World Development
Indicators, 2009. p. 349
6. Some African Integration Schemes
A. Southern African Development
Community (SADC)
 Originally SADCC; Founded 1980;
Originally: a defensive economic
organization vs. apartheid South Africa
 Re-founded in 1992 with S. African presence
 Objective: a full common market
 200 million people;
 GDP +/- $200 billion
Southern African
Development Community
A. Southern African Development
Community (SADC)
 Good Internal transportation grid
 Dominated by S. Africa
 Successful expansion of intra-regional trade
1970: 1.4% of total
2007: 15.2% of total
 Perhaps good prospects
B. East African Community
Long pedigree
Colonial era antecedents;
Established in 1967
Dissolved in 1977 (Idi Amin era)
Tanzania overthrew Amin in 1979
Re-founded in 1994
Rwanda and Burundi join
Population (2000) 86 million;
GDP: $26 billion
Early Progress was limited due to
Problems among Prime Ministers and political differences;
especially with Idi Amin
Perceptions that Kenya was gaining most
East African Community,
member countries
B. East African Community
Significant success after
reestablishment:
Rapid expansion of intra-bloc trade
1970 1980 1990 2000 2007
16.9 8.9 13.3 17.6 20.4
Will Southern Sudan join?
Ethiopia?
C.
Economic Community of West
African States (ECOWAS )
o Founded in 1975
o 15 countries
o member states; 236 million people; +/GDP of $70 billion in 2000
o Promotes functional cooperation in
transport, ITC, industry, agriculture,
energy and monetary policy
C.
Economic Community of West
African States (ECOWAS )
o Nigerian dominance
o 54% of population
o 47% 0f GDP
o HQ: Secretariat in Abuja Nigeria
o Fund for Cooperation Development and
Compensation to support the losers in the
integration process
C.
Economic Community of West
African States (ECOWAS )
 Substantial expansion of trade flows for a
while: Intra-Block Trade:
1970 1980 1990 2000 2007
2.9 10.1 7.8 10.8 9.4
Problem with Intra-Bloc Transportation (See
Railway Map again)
Proposal to adopt a common currency;
Now shelved given the problems of the Euro ?
D. Economic Community of Central African States
•
•
•
•
•
Founded 1983
Objective: full common market
Disparate levels of countries
Little improvement in trade volumes
Due in part to crises in member countries
E. Economic Community
of Central African States
F. Common Market for
Eastern and Southern
Africa
G. Southern Africa's Common Monetary
Area (CMA)
Lesotho, Namibia, South Africa, and Swaziland
G. Southern Africa's Common Monetary
Area (CMA)
Lesotho, Namibia, South Africa, and Swaziland
 An instrument of Apartied S. Africa originally
 Re-launched in 1986
 ,substantial trade expansion and economic
integration
 evidence that it has facilitated the development of
a regional market
 A relationship of unequals, now as before
majority rule
H. African Economic Community
(The Community of Common Markets)
Founded in 1991;
The Sub-Saharan Integration Scheme,
including all others except Mahgreb
African Economic
Community,
including
H. African Economic Community
Ambitious objectives:
• Promote ec., soc., & cultural
development and integration
• Establish a framework for the
mobilization af all resources
• Promote cooperation in all fields of
human endeavour
• Harmonize policies of all existing and
future economic communities
H. African Economic Community
“Fund for community solidarity and
compensation”
Envisages rather complete union ultimately.
Common currency;
Common Central Bank,
Pan-African parliament
Conclusion:
Numerous attempted integration schemes;
Mixed results
Some schemes excessively ambitious, falter in
implementation
Difficulties in establishing effective integration
movements are immense
Success re integration is vital for Africa’s future;
Different approach: “step-by-step”, gradualist,
“learning-by-doing,” “build on success” approach
may be relevant