24 February 2008

East Africa: Why Regional Economic Integration is Not Working

DESPITE the importance of regional integration, there has been limited progress in Africa and the prospects are not promising either, experts at the UN Economic Commission of Africa say.

Mr Hakim Ben Hammouda, Mr Stephen N. Karingi, Ms Angelica E. Njuguna and Mr Mustapha Sadni Jallab, all staff members of the commission, have investigated why regional integration does not improve income convergence in Africa despite the common goal of more open and freer trade.

The purpose of regional integration in Africa is to promote political and economic co-operation, the authors argue in their paper titled "Why Doesn't Regional Integration Improve Income Convergence in Africa?" presented recently at the 2nd African Economic Conference in Addis Ababa.

The paper discusses the link between low-income convergence and growth performance on the one hand, and the little progress in regional integration process on the other.

The slow convergence, the authors argue, is generally associated with the slow growth in output in many African countries. "This weak growth in output is further dependent on the slow accumulation of factors of production and low Total Factor Productivity (TFP)."

The authors demonstrate that in general, most African countries fail to acquire higher capital and deepen employment. "Moreover, the contribution of TFP [the productivity of all inputs taken together] to production is low (in most cases, negative), characterising inefficient production technology," they say.

Secondly, the slow convergence in income may also be attributed to the failure of the African regional economic communities to improve intra-regional trade. Say the authors: "Aside from the fact that Sub-Saharan Africa has only minimal contribution to the world trade, the intra-Africa trade was also minimal.

The regional integration in Africa was not able to increase the volume of commodity traded within the region. It is also doubtful whether there are some significant mobility of labour and resources within each regional economic community."

Thirdly, according to the authors, the limited inflow of foreign direct investment in the region restrains the accumulation of capital that is essential to output growth. "Moreover, the little investment coming into Africa is shared only by few countries."

The regional economic groups studied are the Southern African Development Community , Common Market for Eastern and Southern Africa, Economic Community of West African States, Central African Monetary and Economic Community, West African Economic and Monetary Union.

Given the constraints, the authors, argue thus: "The success of African regional integration and narrowing down the differences in income seems to depend on how the countries in the region would be able to improve trade by opening borders among the neighbouring countries, given the region's marginal share in the world trade ... Although formal institutional framework may help in facilitating regional integration, a lesson from the East Asian emerging countries suggests that a spontaneous and rapid regional integration is through market driven phenomena and sustained economic growth."

Reacting to the findings, Prof. Sam Tulya-Muhika said there have been no attempts to regional economic integration in Africa but rather what is in place are regional co-operation blocs.

"We do not even know what regional integration is," said Prof. Tulya-Muhika, the chairman of the East African Co-operation Forum. "So if it is only regional co-operation you can't get the benefits of regional integration. It's a natural tendency for African states to remain sovereign. Not until we define the purpose of regional economic communities, we shall not even attempt at the same because most states are a creation of colonialism without a shared vision."

Prof. Tulya-Muhika, an expert in regional integration matters, added: "There cannot be employment unless there is increased production. To continue talking about trade will remain a song so long as we are not producing goods and services."

Intra-African trade accounted for just less than 10 percent of the continent's total exports between 1996 and 2005. In the same period, Africa's world exports grew faster than the trade within the continent.

The export commodities being traded within the intra-Africa region are basically of primary products in nature. Petroleum alone accounts for more than 30 percent of this exchange, while cotton, live animals, maize and cocoa add another 18 percent. To a lesser extent, fresh fish, vegetables, tea and sugar are also traded within the region. Manufactured goods account for only about 15 percent of the intra-African export trade.

In a separate paper titled "Transforming EAC into a Productive and Competitive Economic Community," Prof. Tulya-Muhika warns that globalisation represents a danger if it is not understood or cannot be coped with.

"It is harmful to the vulnerable parts of the African population as no safety net exists," he says. "However, globalisation is beneficial to the economically large enough to influence the rules of the game. Hence the absolute imperative for regional integration in Africa, starting with East Africa."

For the transformation of the East African Community into a productive and competitive economic union, Prof. Tulya-Muhika says that any partial or complete restriction on free movement of any factor of production (including land), for whatever reason, will distort the operations of the common market.

"To create an effective and sustainable EAC Common Market, three critical lynch-pins - vision, knowledge and reformed institutions - will be required in order to transform the East African economic landscape from her current low status of being amongst the least developed areas in the world," Prof. Tulya-Muhika suggests.

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