Could emerging economies accelerate regional integration in Africa?

15 September 2016

As the regional integration agenda in Africa gains speed, is the economic engagement of emerging economies on the continent contributing to that agenda? If so, how? If not, can it be leveraged to contribute? 


After 2009, in the aftermath of the global economic meltdown, Africa has witnessed growth in trade and economic relations with emerging economies. This trend was driven partly by the resultant economic slump in the developed world and the fact that emerging economies, such as China, buffered African economies during the crisis by providing welcome alternative export markets, thus diminishing the effects of the crisis. While this relationship had already been steadily growing after the year 2000, from 2009 onwards a marked shift in relations between emerging economies and Africa took place, particularly as seen through the lens of China and India’s engagement in Africa.[1]

These developments have also taken place parallel to a regional integration discourse that has been gaining momentum in Africa. It was in 2008 also that the Common Market for Eastern and Southern Africa, the East African Community, and the Southern African Development Community agreed to negotiate the Tripartite Free Trade Area, which was signed in June 2015. At the same time, in February 2016, negotiations towards the establishment of the Continental Free Trade Area (CFTA) were launched, with the aim of having the CFTA in place by 2017. Both agreements are expected to provide the legal and policy framework to support and boost intra-regional trade.

While Africa’s economic engagement with European countries has undergone several changes over the years, its features are well known and understood. The economic relations between Africa and emerging economies are framed by relations that are still fluid and dynamic, thereby creating much scope to leverage and influence the regional integration agenda in Africa.
 

Context and background

Africa’s growing relationship with the emerging economies takes place within the context of changing and fluid global geopolitical dynamics. Within that frame, Africa has also become a battleground for economic influence between East and West, manifest in the myriad of “Africa” forums hosted by major developed and emerging economies that seek to strengthen political and economic ties.

On the trade front, it is necessary to factor in the Economic Partnership Agreements (EPAs) negotiations with the EU and the renewal of the African Growth and Opportunity Act (AGOA) by the US. While the EPAs are reciprocal free trade agreements, AGOA is a trade preference scheme, but all indications are that this latest renewal is the last iteration of AGOA. China and India also offer preferential trading arrangements to African countries through the Generalized System of Preferences (GSP) by offering duty free quota free access to their markets for least developed countries.

These developments also have to be considered within the context of an evolving global trade architecture, defined by the rise and spread of global value chains (GVCs) in modern day commerce, as well as the emergence of the so-called mega-regional trade negotiations, most exemplified by the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP).

Such developments are also taking place at a time when Africa, despite the end of the global commodities super cycle, is still experiencing a significant level of growth and remains an attractive investment destination, in addition to a large consumer market. This is notwithstanding the fact that Africa’s further growth potential is limited by a number of factors, including the undiversified nature of African economies, poor and inadequate infrastructure (both hard and soft infrastructure), as well as chronic supply-side deficiencies, which severely constrain African markets’ capacity to produce and supply goods and services to domestic, regional, and international markets.

In an era where the GVC structure is the norm, this has significant implications for regional integration in Africa and, indeed, future growth potential. Africa’s main preoccupation therefore, even from a regional integration perspective, has mostly been with industrialisation and infrastructure development, with the objective of facilitating the structural transformation of Africa’s economies, ensuring competitiveness of African-produced goods, as well as boosting intra-regional trade and facilitating integration into GVCs. The discourse on regional integration in Africa, which has been gaining momentum in recent years, frames all of the above.
 

Emerging economies and regional integration in Africa

It must be stressed from the onset that, to date, emerging economies’ influence on African regional integration has not been the result of targeted intervention. Instead, it consists of what observers can perceive by making connections and creating links between their trade, investment, and development aid interventions, where such interventions have regional implications. This, of course, is distinct from speeches or forum declarations where commitments to regional integration are made without specific allusion to any particular project. Emerging economies tend to have a bilateral, project-based approach to their engagement with African countries that, at cursory glance, cannot be said to speak to regional integration.

Africa’s “traditional” partners (mainly EU countries), on the other hand, have long supported African regional integration efforts through trade-related development aid, with well-established technical support structures and capacity building initiatives.

In considering the current role of emerging economies in regional integration, there are three avenues that can be considered: trade, investment, and development aid. Firstly, trade between Africa and emerging economies still remains significant, with China being Africa’s largest trading partner despite a 21 percent year-on-year decline in 2015, while trade between India and Africa also remains buoyant.[2] Other emerging economies, which have significant trade ties with Africa, include Saudi Arabia, South Africa, South Korea, Turkey, and the United Arab Emirates.

Secondly, on the investment front, while traditional partners remain the largest investors in Africa, three of the top ten investors are emerging economies: China, India, and South Africa.[3] Emerging economies are an important source of foreign direct investment (FDI) for Africa, although resource-rich countries – which are largely focused on – still get the lion’s share of this FDI.

Thirdly, emerging economies are also significantly involved through development assistance initiatives in Africa, which have also been growing in scope and coverage over the years. Development assistance from emerging economies, particularly China and India, tends to be presented as a package that bundles aid, trade, and investment initiatives, making it hard to distinguish one from the other. This is a strategic approach that speaks to the particular national economic interests of the emerging economies in Africa, and the Chinese “Angola” model is a particular case in point. The picture of development aid should, however, change when other emerging economies are considered.

As mentioned above, there is no institutionalised emerging economies approach to regional integration in Africa, as distinct from various vehicles created and employed by traditional partners to foster African regional integration and other objectives. Any reference to an institutionalised “Africa” agenda on the part of emerging economies, would, at most, address the South African initiative at the fifth BRICS (Brazil, Russia, India, China and South Africa) Summit in Durban in 2013. As Summit host, South Africa made BRICS-Africa engagement the core of the summit under the theme “BRICS and Africa: Partnership for Development, Integration and Industrialisation.” BRICS leaders also held a retreat with African leaders after the summit, creating an opportunity for both parties to engage beyond the bilateral level.

One of the key outcomes of the summit was the commitment to establish the BRICS Development Bank, now called the New Development Bank (NDB). The NDB is in the process of being established and could potentially play a very important role in regional integration in Africa by plugging some of the funding gaps that exist in infrastructure development and other priorities on the continent.

Clearly, while there is plenty of scope to shape the current and future engagement of emerging economies on the continent, the parameters are not yet set and it is in Africa’s interest to define them. Africa’s response to the emerging economies has been muted in terms of strategy, with countries more concerned with their own individual engagement with emerging partners. As industrialisation and infrastructure development tend to be priorities at national and regional levels, there is a need for both the harmonisation of the emerging economies’ individual engagements in Africa and a strategic response from African countries.

This should be pursued, however, in a manner that satisfies three primary objectives on the part of Africa: reducing barriers to trade and facilitating intra-regional trade; supporting the structural transformation of Africa’s economies, including through better integration and participation in GVCs; as well as expanding not only the export product basket, but also the means of production, for which infrastructure development is critical.

To achieve this, the regional integration approach that focuses primarily on market access has to shift and also concentrate on “behind the border” regulatory issues. This is especially important in light of the fact that African countries have to compete for investment in a world of GVCs and mega-regional trading arrangements. The world of commerce has changed so much that any active participation in the global economy demands that a country be plugged into GVCs. The facilitation of such participation bears on multiple issues, such as infrastructure development, industrialisation, investment regimes, and trade facilitation, among others. This brings to mind the mega-regional initiatives led by the US and the EU, TPP and TTIP, and the major elements of those negotiations. While it is understood that African countries are wary of committing themselves on such issues as intellectual property, investment, government procurement, and a host of other “behind the border” regulatory issues that these mega-regional initiatives are negotiating, it is also true that these are the same kind of issues that will partly determine the attractiveness of Africa as an investment destination and its ability to plug into GVCs.
 

Leveraging emerging economies for regional integration

Leveraging emerging economies’ engagement in Africa to strengthen regional integration can be based on a three-pronged approach:

  • an African strategy for regional integration and associated priorities such as infrastructure development and industrialisation;
  • a joint strategic African approach and response to emerging economies and their engagement on the continent;
  • a full recognition of the role played by Africa’s traditional partners in regional integration so as to create opportunities for complementarities.

Regional integration is not a new phenomenon in Africa, as is the subject of emerging economies and their engagement on the continent. There are also plenty of research studies, projects, and programmes involving the regional economic communities, the African Union, African countries, as well as various stakeholders – both regional and domestic – on the subject of regional integration and how best to leverage on development partners. Efforts should be made, at the continental level, to integrate the various plans that have been adopted and are in motion, and compile a single living strategic plan that can be amended as circumstances demand but still addresses regional integration issues in a holistic manner, combining the various dots that currently exist in silos. Such a document should also engage with institutions such as the New Economic Partnership for African Development (NEPAD), the United Nations Economic Commission for Africa (UNECA), as well as the African Development Bank (AfDB), and be used as a blueprint for regional integration, infrastructure development, and industrialisation.

The document referred to above could then be used as the basis for crafting a strategic plan or approach for engaging with emerging economies on the continent. FDI-seeking initiatives targeting emerging economies, particularly when they speak to projects that could potentially have regional spillover effects, should be based on a common regional integration template. For example, such a template could take a form similar to the Programme for Infrastructure Development in Africa (PIDA). This is especially important when considering the fact that most of the emerging economies’ engagement on the continent tends to be bilateral in nature. The responsibility to ensure the regional compatibility of projects, therefore, does not lie with the investing country but more with the recipient country.

Lastly, there should be recognition by African countries that the roles played by traditional partners and emerging economies on the continent do not have to be mutually exclusive. There are many areas where both could potentially work together, and should work together, particularly when it comes to programmes designed to foster economic growth and development – and eventually enhance regional integration – in Africa. Using infrastructure as an example, while emerging economies tend to focus on hard infrastructure projects, traditional partners tend to focus on both hard and soft infrastructure, going into the regulatory issues beyond the border. The two approaches are compatible and can work together to Africa’s advantage. The same approach could be used with regard to trade and investment. For instance, on the trade front, the US’ AGOA presents an opportunity for value chain entry in various sectors such as automotive, clothing, and textiles, thus supporting the process to promote diversification. China, on the other hand, has been establishing industrial zones or “special economic zones” (SEZs) designed to foster investment. One idea to improve complementarity between the US and China’s efforts would be to ensure that these SEZs are also geared towards AGOA and allow for the production of goods or components that can be exported to the US under AGOA.
 

Conclusion

The rise of the emerging economies and their economic influence in Africa has led to competition between traditional and emerging partners to increase their scope of influence on the continent. This should be utilised as an opportunity for Africa to bargain for greater benefits as well as more ownership of its own development agenda and any support provided for this agenda. However, such a process, as outlined above, has to be led by Africa, otherwise the role of emerging economies and their contribution to regional integration will remain haphazard and unstructured.


Author: Memory Dube, Senior Trade Officer in the NEPAD, Regional Integration and Trade Department, African Development Bank.


[1] Definitions of “emerging economies” are many and varied, but, for the purposes of this article, emphasis will be on China and India who have been particularly active in Africa, although it is acknowledged that there are other emerging economies engaging with the continent.

[2] S. Freemantle, “BRICS-Africa: the hype is gone, but much remains,” Standard Bank, Insight and Strategy, 8 June 2016.

[3] United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2016, Geneva: UNCTAD, 2016.

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