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
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Vinaye Ancharaz African integration facing up to emerging challenges
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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
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
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
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
• 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
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* 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.
• 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
Intra-Africa investment flows
REC Period
FDI inflows (USD billion) Intra-regional
shareTotal Intra-regional
COMESA2003-05 17.9 0.2 1
2009-11 34.0 2.6 8
EAC2003-05 2.3 0.0 2
2009-11 9.9 1.4 14
SADC2003-05 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
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Source: UNCTAD (2013)
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
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• 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
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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
• 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?
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 industries19
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.
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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.
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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
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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
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
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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.
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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
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