A Fresh Look at Africa’s Integration in Regional Economic Communities

13 October 2017

A comparison of progress in integration in African regional economic communities with that of other South–South regional integration arrangements reveals slow progress in meeting overly ambitious objectives.
 

Following an aborted early phase of integration in 1980 under the Lagos plan, regional cooperation in Africa began in earnest with the Abuja Treaty in 1994, which set ambitious and wide-ranging objectives that reflected the need to accommodate heterogeneity of interests across the continent. Progress would be achieved by integration within regional economic communities (RECs) that would, through closer economic and political ties, lead to a united economy: the African Economic Community. The RECs continue to be the glue to cement African unity.

How have these RECs performed? Drawing on indicators along multiple dimensions (geographic, economic, cultural, and institutional), a recent progress report takes a fresh look at trade outcomes for each of the eight African RECs relative to those of three other South–South regional integration arrangements: the Andean Community, the Association of Southeast Asian Nations (ASEAN) and MERCOSUR, the Common Market of the South.[1] The RECs have their roots in the political forces determined by the colonial legacy. This resulted in a configuration of highly heterogeneous states along multiple dimensions (ethno-linguistic, religious, cultural) and artificial boundaries (splitting tribes, disregarding natural boundaries like rivers or mountains)—a great challenge for countries wishing to integrate to accelerate industrialisation. The selected indicators are intended to inform on this diversity across RECs.
 

Implementation difficulties symptomatic of capability traps …

The RECs have imported the EU integration model where the bet was that creating similar institutional bodies focusing on consensus decision-making would lead to a reduction in “heterogeneity costs” across the different European populations.[2] This integration process, resting on a high implementation capability, was spread over a 50-year period and involved the creation of 13 institutions. African RECs have set up a large number of institutions at early stages of integration. The Economic Community of West African States (ECOWAS) has six institutions, 10 specialised agencies, and two private sector organisations. The Common Market for Eastern and Southern Africa (COMESA) has 11 institutions, and the East African Community (EAC) has eight institutions. This attempt at accelerated integration through transplanted best practices appears symptomatic of a “capability trap” “where [systems] adopt organisational forms that are successful elsewhere to hide their dysfunction.”[3]

Three examples of implementation difficulties are suggestive of capability traps. Most recent is the discord among the 26 members of the Tripartite Free Trade Agreement (TFTA) in July 2016 – the TFTA, between COMESA, the Southern African Development Community (SADC) and the EAC, was initiated in 2008 and to be launched in 2017 as a watered-down “variable geometry” free trade agreement. At the meeting, countries failed to reach an agreement on a list of goods for tariff removal that would cover between 65 percent and 85 percent of tariff lines. The TFTA is an example of the trade-off between breadth (large membership to extend market size) and depth (small membership favourable to deeper integration, as in the EAC).

Second, when ECOWAS adopted supplementary protection measures (SPMs) (C/REG.1/09/13) to allow for temporary duty (up to five years) above the corresponding five-band common external tariff (CET) rate adopted by the ECOWAS customs union in 2015, the directive specified that SPMs were for most favoured nation (MFN) tariffs that were above the CET rate but “forgot” to envisage that SPMs could also apply to MFN tariffs heavily below the CET rate. This omission would have severely penalised small countries like Liberia where three-quarters of tariffs outside the five-band CET are on the low side.[4]

As a final example, take the conclusions of the report of the 2014 meeting of the Council of Ministers of the 19 COMESA members that took stock of progress in implementing the customs union adopted in 2009.[5] Taking a tally of the 217 decisions reported in the COMESA gazette from 2009 to 2012, the report notes that 13 percent of decisions were not addressed to any party. Regarding the signing and ratification of COMESA instruments that were to be carried out from 2009 to 2012, 75 percent (of the 12 instruments) had been signed by the majority of members states, but this percentage drops to 42 percent (or five instruments) when it comes to ratification. Among the 12 legal instruments considered, only one, namely the COMESA Treaty, had been signed and ratified by all members.

In sum, the establishment of functioning supranational entities to carry out this integration requires a delegation of authority (to confront the trade-off between the benefits of common policies and the costs of a loss of sovereignty in policy decisions). Successful implementation requires capabilities and trust which are difficult to build under any circumstance, but particularly so in Africa’s landscape of great diversity.
 

… exacerbated by heterogeneity in economic, cultural and institutional indicators …

Relative to comparators, on average, the eight RECs have a much lower per capita income and are smaller in economic size, with larger dispersion across REC members. The RECs also have a large diversity in membership (least developed countries (LDCs)/non-LDC, landlocked/coastal, large/small). Most RECs also have lower average indicator values of trust (greater genetic distance, greater ethno-linguistic fragmentation) than comparators. As to the quality of domestic contracting institutions (captured by the law component of the World Governance Indicators), which have been found to be as important in explaining differences in comparative advantage across manufactures as factor endowments emphasised by traditional trade theories, average indicator values for the RECs do not compare favourably with those in the comparator group (except for the Andean Community, which has similar average values).
 

… reflected in low regional trade intensity and persistently high trade costs

When entered in cross-country correlations of bilateral trade in manufactures, these economic, cultural, and institutional indicators are significant predictors of the intensity of bilateral trade. Of importance is that, after controlling for the usual factors in gravity trade models (distance, multilateral resistance, common language, etc.), poor institutional quality and bilateral genetic distance are negatively correlated with the intensity of bilateral trade, and that trade costs are a greater impediment to trade in low-income countries. Comparing estimates from South-South with North-North samples suggests that a doubling of trade costs (proxied by the value of the distance coefficient) would reduce bilateral trade by 35 percent and 14 percent respectively. In conclusion, these results give support to the importance of indicators of culture, trust, and institutions in bilateral trade as co-determinants with economic indicators of bilateral trade. These have been overlooked in progress reports on integration in low-income countries.

When comparing the intensity of bilateral trade before and after the signature of the agreement, the data only reveal a clear break for ASEAN. By contrast, the share of intra-bloc imports remains very low throughout all other regional integration arrangements (including the RECs). Another indicator showing no significant change after integration is the “average distance ratio” of trade among members of the RECs. The value of this ratio would fall if the ensemble of integration measures did indeed reduce the costs of intra-regional trade relative to trade costs with other partners. Except for the EAC and MERCOSUR, the average distance of trade did not fall 10 years after signature of the agreement. In sum, trade costs have remained persistently high among the RECs.
 

How deep are the RECs?

Figures 1 and 2 compares the depth of integration measures in seven sub-Saharan Africa (SSA) regional trade agreements (RTAs) (including four RECs) and 108 other South-South RTAs. Classification is two-dimensional: coverage (both regarding WTO+ provision, i.e. those covered by the WTO, and WTO-X provisions, i.e. those not covered by the WTO); and the degree of legal enforceability based on the wording in the provision.[6] The tally shows, not surprisingly, that legal enforceability is much higher for WTO+ than for the WTO-X provisions that are not covered by the WTO, with a lower legal enforceability for WTO+ measures for SSA RTAs. As to the WTO-X provisions (all those that are not covered by the WTO negotiations), coverage is more than twice as high in African RTAs, but, at 5 percent, the legal enforceability is as low as in other South-South RTAs. On average, however, legal enforceability is always lower for African RTAs than for other South-South RTAs. The high coverage of WTO-X provisions in SSA RTAs could reflect a combination of three factors: (1) a high coverage inspired by coverage in EU agreements; (2) a way to build trust by including preferences of all participants; and (3) a sign of diplomacy among countries with large differences in preferences.
 

Figure 1. Coverage of WTO+ provisions in RECs and South-South RTAs, by category of obligations

 

Figure 2. Coverage of WTO-X provisions in RECs and South-South RTAs, by category of obligations

 

Source: de Melo, Nouar and Solleder (2017).
 

In figures 1 and 2, regulations faced by producer services fall under the following categories: investment-related obligations, domestic trade-related regulations, and capital and labour regulations. For all these categories, on average, the African RTAs have lower enforceability than in other South-South agreements. This is particularly so for the investment-related obligations (General Agreement on Trade in Services (GATS), Agreement on Trade-Related Investment Measures (TRIMs), Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)), which have lower coverage and lower enforceability. The importance of producer services in production is confirmed in panel regressions of bilateral trade in parts and components that are exchanged in supply chains for the sample of South-South RTAS of figures 1 and 2. Controlling for other determinants of bilateral trade, three measures of depth – all provisions, core provisions (WTO+ provisions plus competition and movement of capital), and the percentage of provisions covered – are all statistically significant contributors to bilateral trade in parts and components.
 

Moving ahead

The RECs have been the driving force for integration across the African continent, where small, fragmented, and isolated economies with a very unequal distribution of geographic characteristics make a compelling case for integration on a regional basis by reducing the thickness of borders to exploit scale economies and reap efficiency gains. The comparative review suggests four takeaways. First, relative to the three South–South comparators, the RECs have greater disparity in membership characteristics, and weaker indicators of the quality of domestic institutions. Second, progress has been slow towards meeting overly ambitious objectives suggestive of an implementation capability trap. Third, since their inception, reorganisation in the pattern of trade in manufactures towards REC partners has been small, suggesting that regional trade costs have not fallen, at least relative to non-regional trade costs. Fourth, compared with other South-South regional integration arrangements, the RECs have moved towards deeper integration by including a high number of provisions not covered in WTO negotiations. However, these provisions have low legal enforceability. Reducing intra-regional trade costs by tackling the removal of barriers to trade in goods and trade in services remains a challenge for successful integration across African RECs.
 

Author: Jaime de Melo, Emeritus Professor, University of Geneva, Scientific director, FERDI, and Academic advisor, Geneva Business School.


[1] Melo, Jaime de, Mariem Nouar, and Jean-Marc Solleder. “Integration along the Abuja Road Map: A Progress Report.” Ferdi Working Paper 191, July 2017; see also Melo, Jaime de. “The Tripartite FTA: Is It the Way to Deepen Integration in Africa?” Brookings, 4 November 2014.

[2] Spolaore, Enrico. “The Political Economy of European Integration.” In Badinger, Harald and Volker Nitsch, eds, Handbook of European Integration (Abingdon: Routledge, 2015).

[3] Pritchett, Lant, Michael Woolcock, and Matt Andrews. “Looking Like a State: Techniques of Persistent Failures in State Capability for Implementation.” Journal of Development Studies 49, n°1 (2013): 1–18.

[4] Melo, Jaime de, and Anne Laski. “Will West Africa’s Common External Tariff Protect Consumers?” International Growth Centre blog, 17 December 2014.

[5] COMESA. “Report of the Thirty Second Meeting of the Council of Ministers.” 2014.

[6] See Horn, Henrik, Petros Mavroidis, and André Sapir. “Beyond the WTO: An Anatomy of EU and US Preferential Trade Agreements.” World Economy 23, n°11 (2010): 1565–88.

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