Challenges to regional integration and trade in Africa

History and the legacy of colonialism have bequeathed the African continent with a legacy of fragmentation. The African continent geographically is divided into 54 countries, 28 of which have a GDP under $10-billion. In addition, 26 countries have a population under 10-million inhabitants, and 16 nations are landlocked. This fragmentation has traditionally been a significant constraint on Africa’s development, making it very difficult to build the economies of scale required for the continent to become internationally competitive.

However, despite spatial and regional challenges, Africa’s trade continues to grow. Intra-African trade has more than doubled over the last ten years, from $47-billion to $108-billion. Half of this trade is within the Southern African Development Community (SADC), where our country – South Africa – trades with the majority of our neighbouring states. However, there is also evidence of substantial levels of unrecorded cross-border trade in the informal sector which is not formally calculated to overall export growth statistics. As an example, the Uganda Bureau of Statistics estimated that informal trade could account for as much as 25 percent of exports for that country. This statistic suggests exponential potential gains from greater integration of regional markets.

Added to this, Africa’s intercontinental trade has also more than doubled, with imports and exports accounting close to a trillion dollars. As a result, Africa’s share of global trade recovered from 2.5 percent in 2005 to 3.1 percent in 2011. This growth however, is masked by Asia’s rapid expansion and growth in other developing countries. Most of Africa’s new trade is with Asia. While exports to advanced economies have shrunk from 75 percent to a little more than half of African exports, exports to Asia have grown to five times the previous level.

Yet the regional integration agenda remains a challenging one. Africa’s deficits in “hard” infrastructure – particularly poor transport connections and costly and unreliable power supply — remain one of the major constraints on trade and regional integration. A significant proportion of our continent’s road network is unpaved, and many routes pass through fragile or conflict-affected states where basic maintenance is often neglected. Estimates project that an investment of $32-billion in upgrading and maintaining Africa’s major road network would lead to a $250-billion increase in trade over a 15-year period, with the biggest gains going to the most isolated regions. Since its creation in 2005, the Infrastructure Consortium for Africa (ICA) has helped to increase the level of investment in regional infrastructure.

There are also issues with the “soft”, or institutional, infrastructure for regional trade, including non-tariff barriers, restrictive rules of origin, poor legal and regulatory environments and a lack of trade facilitation. These have to be addressed if Africa is to become competitive in the global marketplace.

Africa’s leaders continue to be committed to creating a single African market. Over the years, however, a proliferation of parallel initiatives has led to a complex architecture of overlapping Regional Economic Communities (RECs), making progress more difficult. There are some useful initiatives now underway to rationalise this architecture. For example, the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and SADC have launched a single free-trade area.

In Central Africa, two resource-rich RECs (the Economic Community of Central African States and the Economic and Monetary Community of Central Africa) are planning a merger, while in West Africa there are plans to establish a single monetary union by 2020. To effectively support these initiatives, there is a need for fewer, more specialised regional institutions operating with improved governance arrangements and a higher level of transparency so that their progress can be monitored.

Promoting inclusive growth means finding solutions to some deep structural problems. It means broadening the economic base beyond the extractive industries and a handful of primary commodities. It means promoting labour-intensive industries, so that creating employment becomes an engine for poverty reduction. It means overcoming Africa’s vast infrastructure deficit, to link rural areas to the more dynamic cities and coastal areas and to foster greater economic integration. It calls for a reversal to decades of under-investment in agriculture, to boost farm productivity and reduce food insecurity. And it means generating real opportunities for Africa’s young people, so that the youth bulge becomes a source of dynamism rather than instability.