What are the external factors impacting African integration? This presentation discusses 6 of these factors: the economic partnership agreements, emerging economies, AGOA, the rise of mega-regionals, the Trade Facilitation Agreement and regional value chains

1. CLIMATE AND NERGY
www.ictsd.org
Regional choices, global context: Opportunities for Southern Africa
Vinaye Ancharaz, Senior Development Economist, ICTSD
28-29 JULY 2015| Johannesburg, South Africa
VINAYE ANCHARAZ
African Integration: Facing up to Emerging
Challenges

2. CLIMATE AND NERGY
• The road travelled until now: From the Abuja Treaty to the launch of the
TFTA
• Current state of regional integration in Africa
• Challenges and opportunities
Outline

3. CLIMATE AND NERGY
• The road travelled until now: From the Abuja Treaty to the
launch of the TFTA
• Current state of regional integration in Africa
• Challenges and opportunities

4. CLIMATE AND NERGY
• The Abuja Treaty (1994) envisages the establishment of a
complete African Economic Community (AEC) in 6 phases over
34 years by 2028
• Largely on target
• … even if some delay at the level of RECs
The road travelled so far

5. Week 1 2 3 4 5 6
1991 1994 1999 2000 2001 2007 2010 2015 2017 2019 2023 2028
Abuja
Treaty
Entry into force of
Abuja Treaty
1st stage – Strengthening
existing/ creating new
RECs
COMESA FTA
established
SADC FTA
established
2nd stage – Stabilization
of tariffs and other
barriers to reg. trade
EAC CU launched
ECOWAS CET enters
into force
Tripartite FTA launched
3rd stage – Establishment
of FTAs and Customs
Union at REC level
4th stage – Establishment
of Continental CU
5th stage –
Establishment of
African CM
6th stage –
Establishment of
African EMU
MILESTONES
OUTCOMES
Source: ICTSD5

6. 1991 1992 1994 1996 1998 1999 2000 2001 2002 2004 2008 2011 2012 2014 2015 2017 2019
Abuja Treaty
Establishment of SADC
Entry into force of Abuja Treaty
Establishment of COMESA
Establishment of CEMAC
Establishment of IGAD
SADC Trade Protocol
Establishment of CENSAD
Sirté Declaration
Establishment of EAC
Adoption of AGOA
SADC FTA
AU Constitutive Act
Lomé Summit and Declaration
Adoption of AU Constitutive Act
Adoption of NEPAD
Start of EPA negotiations
South Africa joins SADC
First Tripartite Summit
Second Tripartite Summit
First Tripartite Negotiation Forum
Action Plan to boost Regional
Integration
SADC – EU EPA
EAC – EU EPA
ECOWAS – EU EPA
11th Tripartite Trade
Negotiations Forum
SADC industrial
development policy
TFTA launched
Expected CFTA
launch
Continental
Customs Union
COMESA launches FTA
Source: ICTSD
6

7. Source: AfDB (2014)
REC implementation status
• Varying levels of ambition and achievement
• Delays in achieving key milestones
2008 2010 20162015
7

8. • The road travelled until now: From the Abuja Treaty to the launch
of the TFTA
• Current state of regional integration in Africa
• Challenges and opportunities
8

9. Intra-REC trade intensity*
0%
5%
10%
15%
20%
25%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Trade Intensity for select RECs: 2000-2013
ECOWAS, 5.7%
COMESA, 5.2%
SADC, 13.4%
EAC, 17.2%
• EAC – the best
performer
• … followed by SADC…
but SA polarization
• Intra-REC trade
intensities in ECOWAS
and COMESA below 6%
in recent years
• Compare with intra-
ASEAN export intensity
of 26.4% (2011)
Source: ICTSD, using data from Comtrade
9
* Refers to the share of a REC’s total exports that takes place within itself. In computing the
trade intensities, multiple membership is allowed. The numbers reported in the chart are
averages over the period 2009-2013.

10. 0
5
10
15
20
25
30
35
40
45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
USDbillion
Intra-TFTA exports, 2000-2013
Intra-TFTA exports
Intra-TFTA exports excl. SA
Intra-TFTA exports excl. SA, Egypt and Angola
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
USDbillion
Intra-Africa trade, 2000-2013
Intra-Africa merchandise trade
Intra-Africa merchandise trade excl. SA
Intra-Africa merchandise trade excl. SA, Egypt and Nigeria
Intra-regional trade - trends
10
South Africa
Source: ICTSD, using data from Comtrade

11. Africa trade intensity
6%
7%
8%
9%
10%
11%
12%
13%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
African Trade Intensity, 2000-2013
Africa
TFTA
• The TFTA region has a
higher intra-regional
trade intensity than the
continent as a whole…
• … because the RECs with
the deepest level of
integration are in ESA.
• Intra-Africa trade
concentrated more in
manufactures …
• … implications for
Africa’s structural
transformation.
11Source: ICTSD, using data from Comtrade

12. Intra-Africa investment flows
REC Period
FDI inflows (USD billion) Intra-
regional
share
Total Intra-regional
COMESA
2003-05 17.9 0.2 1
2009-11 34.0 2.6 8
EAC
2003-05 2.3 0.0 2
2009-11 9.9 1.4 14
SADC
2003-05 23.0 1.0 4
2009-11 32.0 3.2 10
• Significant increase in volume, and
especially share, of intra-regional FDI
flows across RECs
• Led by SA. Kenya, Nigeria and North
African countries – emerging sources
of FDI since 2008.
• Driven by cross-border operations of
MNCs based in major African
economies.
• Focused on manufacturing and
services.
• Major hosts: Nigeria, Ghana, Uganda,
Zambia
12
Source: UNCTAD (2013)

13. Reasons for slow progress
• Politics vs. economics of regional integration
• Low levels of commitment because non-compliance is generally not
sanctioned.
• Exception: Case of Polytol (Egypt v. Mauritius)
• Implementation costs, institutional weaknesses, overlapping
memberships
• “Treaties and protocols outline what should be done but not how to
do it.” (ADR ’14, p.10)
• Reluctance of African states to cede sovereignty to regional level
• Low levels of coordination
• Polarization of trade
13

14. • The road travelled until now: From the Abuja Treaty to the launch of the
TFTA
• Current state of regional integration in Africa
• Challenges and opportunities
14

15. Current challenges and opportunities
• Global context
• Fragile economic recovery
• Unfinished Doha Round (leading to MRs, plurilaterals, etc.)
• Multiple external forces affecting regional trade and integration
• Challenges
• EPAs, EPs, MRs
• Opportunities
• AGOA, TFA, RVCs
• But challenges can be opportunities…
15

16. Challenges (1): EPAs
• EPAs concluded:
• MMSZ (Aug. 2009)
• ECOWAS (Jan. 2014)
• SADC (July 2014)
• EAC (Oct. 16, 2014)
• Why EPAs are important for Africa? EU remains Africa’s main market – by far.
• Estimates of welfare effects of EPAs largely negative – across all configurations
• The EPAs promised to strengthen regional integration, but had the opposite effect
at the outset
• However, the EPAs are now incentivizing African RECs to deepen integration…
• EPA RoO allow for regional cumulation – conducive to regional trade and
integration.
• But the TFTA will need to adopt a common set of RoO. Will EPA RoO prevail?
16

17. Changing destinations of Africa’s exports
EU
49%
US
19%
BRIC
8%
Intra-Africa
6%
RoW
18%
Africa's export destinations, 2000
EU
36%
US
8%
BRIC
28%
Intra-Africa
11%
RoW
17%
Africa's export destinations, 2013
17

18. Trends in Africa’s global exports
0
50
100
150
200
250
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
USDbillion
BRIC
ROW
US
Intra-Africa
EU
18

19. Challenges (2): Africa’s emerging partners
• BRIC’s share of Africa’s exports has increased from 8% in 2000 to 28% in
2013.
• Evidence that:
• Africa’s exports to BRIC are heavily concentrated in extractives (oil, copper, iron ore,
etc.)
• Intra-Africa exports more intensive in manufactures than Africa’s exports to ROW
• Implications
• This kind of ‘specialization’ can allow African countries to get the best of both worlds
• Structural transformation
• Deeper integration
• China’s industrialization strategy for Africa, SEZs and aid for infrastructure,
and India’s investment and technology transfer can help enhance
productive capacity in African countries and boost trade – both regional
and international – and in a diverse range of products.
• Countries with little scope besides primary commodities should use their
export proceeds to develop new industries
19

20. Challenges (3): Rise of mega-regionals
• TPP, TTIP, RCEP, etc.
• Trade diversion effects on excluded partners likely to be small due to
already-low tariffs.
• Flexible RoO would benefit excluded countries.
• Services – effects will depend on meaningful liberalization of Mode 3.
Overall effects on excluded countries likely to be “small”, except BRICS.
• Major impact on African economies likely to follow from
harmonization of standards.
• If MR is extended to third parties, it could have a significant liberalizing
effect.
20

21. Challenges (3): Rise of mega-regionals/2
Less ambitious Ambitious
EU 68,274
(0.27)
119,212
(0.48)
US 49,543
(0.21)
94,904
(0.39)
All other
countries
46,636
(0.07)
99,171
(0.14)
Of which: LICs 1,064
(0.09)
2,366
(0.20)
GDP effects of TTIP (USD million and %)
Source: Francois et al. (2013)
• Small but positive
effect on other
countries
• No separate results
for Africa, but the LIC
group could be a good
proxy.
21

22. Options for excluded countries
• Turn protectionist? (Bad idea!)
• Liberalize? (Always a sensible thing to do.)
• Create rival RTAs or strengthen existing ones? (Domino effect)
• Adopt standards from mega-regionals or press for international
standards?
• Complain… and seek compensation (AfT)?
• Go back to the WTO?
• Seek “MFN extension” to Government Procurement
• Modalities to harmonize over FTAs?
• Revisit SDT?
Challenges (3): Rise of mega-regionals/3
22

23. Opportunities (1): AGOA
• AGOA (adopted in 2000) was renewed in May 2015 for another 10 years
• AGOA, and its flexible RoO, including the Third-Country Fabric derogation,
spurred development of an apparel industry in Lesotho, Swaziland,
Madagascar (?), Mauritius, Kenya, Cote d’Ivoire… and of RVCs in ESA
• Duty-free treatment to 1835 products. Yet, African exports limited to
apparel and oil (46% of US imports under AGOA in 2014)
• AGOA excludes a number of products in which African countries are known
to be competitive. Agricultural products subject to TRQs
• Products like sugar, peanuts and tobacco face prohibitive tariffs
• Restrictions on sugar and dairy content prevent agro-processing (e.g.
cocoa)
• But can AGOA be leveraged and the negative trend of African exports to US
reversed?
23

24. Opportunities (2): TFA
• TFA signed off in Nov. 2014
• But lack of appetite (esp. among LDCs and African economies) to
implement the Agreement…
• …despite evidence of the benefits of TF
• About $600 billion to developing countries (WB)
• Trade costs of up to 15% of the value of traded goods for landlocked countries
• A dollar of AfT spent on “trade policy and regulation” has a higher trade-
creation effect than similar investments in “economic infrastructure” or
“trade development” (Helble, Mann and Wilson, 2009)
• Yet a number of countries are implementing TF measures –
independently of TFA
24

25. Opportunities (2): TFA/2
• TF provisions exist in most trade treaties – e.g. EAC, COMESA and
SADC have explicit provisions on customs cooperation, use of
international standards and simplification of formalities/procedures
• However, implementation has remained patchy.
• Regional projects such as OSBPs along the NSC, customs
harmonization and cooperation amply demonstrate the impact of TF
on regional trade.
• Therefore, African countries and RECs should implement the TFA as a
self-interested act. If properly sequenced, TF can pay for itself.
25

26. Opportunities (3): Regional Value Chains
• RVCs – a key determinant of intra-regional trade flows…and vice versa
• ESA – most integrated in value chains
• Africa dominated by commodity value chains, but significant opportunities exist
in agro-processing (additive VCs)
• Outside of commodities, apparel is a rare example of vertically specialized value
chains
• But let’s not forget services – call centres, transport, financial, retail trade, etc.
• RVCs in apparel spurred by AGOA – e.g. cotton from Zambia, fabrics from Lesotho
and Mauritius, zippers from Swaziland, assembly in Madagascar
• EPA provisions on regional cumulation can have similar effects (esp. in ESA)
• “Widening” integration can boost RVC development through favourable RoO and
real liberalization
• In addition to the “usual suspects”, strategic policies, including “new” industrial
policy, critical to VC development in Africa 26

27. Conclusion
• Interesting times for African integration
• Integration efforts at the level of RECs have lagged.
• But there are significant opportunities to strengthen regional integration.
• Moreover, challenges can be turned into opportunities
• But many questions remain:
• Can the TFTA be yet another opportunity to boost integration (given that efforts at
the level of the RECs have lagged)?
• Or will it be another piece in the spaghetti bowl?
• Will the TFTA liberalize “substantially all the trade…”? (GATT Art. XXIV)
• Will the TFTA make the RECs redundant?
• What will be the balance of power among member-states of the TFTA? Is it being
driven by SA (as the stand-off on the question of RoO seems to suggest)?
• And what about the CFTA? How will we get there when the processes haven’t been
defined?
• Let us keep in mind that the TFTA is just the beginning… and it is yet to take
off…
27