Implementation of agreed policies will result in deeper market and trade integration

08/10/2013
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African policy-makers, government officials and development experts recognize the crucial role of regional integration in the development of African economies. They add that this interaction can be accelerated or reinforced through the creation of a common market for goods and services.

However much more can be done according to African Development Bank background paper titled “Understanding the Barriers to Regional Trade Integration in Africa”.

“Despite the long history of regional integration on the continent, the level of intra-African trade remains low in comparison with other regions,” writes AfDB Economist Kennedy K. Mbekeani in the 23-page report. “Using intra-regional trade share as a measure of regional integration, Europe had the highest degree of market integration followed by Asia and North America in 2009. Africa had the lowest degree of market integration among the 7 regions with only 11.7% of its trade destined within the continent.”

Efforts are being made in regions, but many barriers remain in almost all key sectors, including ports, roads, transport and energy:

Ports

Many of Africa’s ports struggle to offer competitive services on par with  global standards; however, the reasons for inefficiency range from inadequate equipment to complex regulation. Most container terminals are nearing or have reached capacity limits and are under-equipped.

Roads

The cost of moving goods along Africa’s key trading corridors is exceptionally high, at $100-300 per tonne, and the delays exceptionally long (up to 40 days in some cases). This is partly due to inadequate road infrastructure, with important sections of the regional network requiring upgrades of various kinds.

Energy

Electricity supply is another serious infrastructure problem driving up production costs. Many exporters in Africa report that unreliable power supply is one of the biggest problems affecting their operations. Frequent power outages stop production and drive up operating costs.

Transport

Transportation is probably the most important infrastructure barrier to trade in most African countries. Transport costs are a key determinant of the competitiveness of firms on export markets. All forms of transportation – road, rail, sea and air – are costly in Africa, including feeder roads that link farmers to markets.

In his report, Mbekeani finds that African governments and their partners are committed to overcoming these barriers, and the search for sustainable solutions has emerged as a key African agenda in the context of the New Partnership for Africa’s Development (NEPAD), the World Trade Organization’s Aid for trade initiative, and domestic economic reforms.

Mbekeani’s paper was prepared as a background document for the 2011 G20 Summit in France and provides a strategy or framework for the way forward. The proposals are based on the findings of a review of intra-regional trade in Africa as well as a presentation of the obstacles to increasing intraregional trade.

The paper’s key messages include:

  • Inadequate infrastructure connectivity (transport and communications infrastructure) and costly and unreliable power impose severe constraints on thousands of African enterprises. Compounding the challenges due to inadequate physical infrastructure, time delays and costs created by weaknesses in trade facilitation, non-tariff barriers, restrictive rules of origin (for both intra-Africa trade and in major export markets in the rest of the world), and a poor regulatory environment further handicap private business and trade.
  • For Africa, the issue is not whether countries should pursue regional integration; there is a political consensus to do so. The challenge is to effectively implement agreed policies and create conditions that will result in deeper market and trade integration and identify ways to maximize the benefits of doing so, and deliver concrete results to the people of Africa.
  • Regional integration can help to achieve economies of scale and build the supply capacity and competitiveness of Africa through targeted regional infrastructure to fill vital missing links, inter-connect the continent and undertake reforms to facilitate cross-border trade, investments, financial flows and migration.