Regional Integration for Africa’s Structural Transformation

23/05/2013
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Africa needs accelerated growth and “structural transformation” in order to take the bulk of its population out of poverty.

Critical to the attainment of this structural transformation is without a doubt the regional integration of the continent’s weak, small and disparate economies. Regional integration, it is clear, is indispensible to building the economies of scale and achieving the international competitiveness necessary for Africa’s structural transformation. Indeed, regional integration has been part of the Bank’s mandate since its creation in 1963.

Over the years, however, the Bank has also learned that it is by no means easy to achieve. Political pledges to integration by African leaders have not always been translated into action. Poor infrastructure has been another critical barrier to progress. Africa’s road densities, for instance, are the lowest in the world. Regional road and rail networks are too often in a poor state, creating major hurdles in the transportation of goods and people, stifling regional trade, economic growth, and the global competitiveness necessary for Africa’s structural transformation.

Yet the AfDB remains determined to help ensure the success of Africa’s regional integration and serve as its “motor”. “Regional economic integration is essential for Africa to realize its full growth potential, to participate in the global economy and to share the benefits of an increasingly connected global marketplace. Having 54 individual countries, often without the physical and economic machinery to act in tandem, seriously limits this possibility,” the Bank says in its Strategy for 2013–2022 titled “At the Center of Africa’s Transformation”.

Promoting regional integration requires investments at a number of levels. It calls for the development of adequate “hard” or physical infrastructure, including regional transport links and energy and telecommunications networks, together with institutional arrangements for their management and maintenance. Aware of the critical role it will play in any integration effort, the AfDB will now increase its focus on regional infrastructure and “take a regionally integrated approach to infrastructure development,” its new strategy says. Using the strategy, the Bank will increase its financing of regional infrastructure. It will, according to the strategy, also seek new and innovative ways to finance African infrastructure. These will include the development of infrastructure bonds for the continent.

The Bank has already and continues important contributions to the growth of Africa’s regional infrastructure. Since 2009, it has financed more than 70 multinational operations totaling US $3.8 billion. These have led to the construction of 467 kilometres of cross-border roads and the construction and rehabilitation of 776 kilometres of cross-border transmission lines, among other positive impacts.

Yet hard infrastructure alone will not suffice. Equally important to regional integration is “soft” or institutional infrastructure. Africa’s intra-regional trade still faces pervasive non-tariff barriers, including restrictive “rules of origin”, weak legal environments, and stifling procedures that account for enormous losses in regional trade and economic growth. For their regional integration agendas to have any significant impact, African countries will have to simplify and harmonize complex and lengthy trade and customs procedures, do away with restrictive “rules of origin”, and tackle corruption and other informal trade barriers. They will also have to harmonize essential policies and institutions among trading partners.

To help overcome these soft barriers to regional integration, the AfDB will support the strengthening of integration policies at the national and regional levels, and also help fix capacity constraints. “Strengthening regional economic communities and other regional partnerships will facilitate regional planning and economic integration, making it easier for goods and people to cross borders, creating larger, more attractive regional markets and boosting intra-African trade,” the Bank’s strategy says. The AfDB will also invest in one-stop border posts that improve the flow of goods between countries, and in national immigration offices with well trained and motivated officials. It will also continue to support the integration of Africa’s financial markets to enable a freer flow of capital between countries. The Bank will also help African states to develop the skills to take advantage of their more integrated economies. These investments are expected to help lead to the progressive withdrawal of “soft barriers” across African borders. This, in turn, is expected to ease the flow of goods, labour and capital through Africa’s Regional Economic Communities, raising economic growth throughout the continent and supporting its structural transformation.

A third aspect of the Bank’s regional integration agenda aims at supporting African states in the management of cross-border challenges of a regional or continental nature, such as water management, climate change adaptation, cross-border health issues and other areas that benefit regions as a whole. With regard to climate change, for instance, the Bank will continue to promote joint, regional initiatives. It will also continue to mainstream climate change in its cross-border and regional initiatives while also promoting regional access to international climate change finance.

In implementing its 2013-2022 strategy, the AfDB will play an increased role in preparing regional projects, identifying partners with the right capacity and expertise, and bringing them together to provide comprehensive solutions for Africa’s regional integration. It will complement this effort with to its own increased investments in the area, while also mobilizing capital from a range of partners both new and traditional, as well as public and private, for Africa’s regional projects.

As Africa’s premier development finance institution, the AfDB, with its financing, knowledge and convening power, is well positioned to play a lead role in fostering the regional economic integration of the continent that should, in turn, support the structural transformation sought. The record speaks for itself.