Transcript Regional Integration in Africa: Case for Rationalisation

Preliminary results on the implications of the Tripartite FTA
Stephen N. Karingi
Chief of Trade and International Negotiations
UN Economic Commission for Africa
Addis Ababa, Ethiopia
Outline of the Presentation
1) Background
2) Why is Africa integration different?
3) Basic economic structure
4) State of play in Eastern and Southern Africa
5) Methodology
6) Results
7) Concluding remarks
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1. Background
 Economic and political justifications often cited for regional
and multilateral integration.
Europe: Peace and stability
Africa: Ideal of Pan-Africanism
 UNECA (2006) identified the main driving forces in regional
integration in Africa:
Geographical proximity and contiguity
Political cooperation
Continental and global institutions (e.g. NEPAD and WTO)
 The Abuja Treaty recognized five regions:
North Africa
West Africa
Central Africa
East Africa and
Southern Africa
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2. Why Africa Integration is Different?
 Currently, there are 14 RECs on the Africa continent.
 Of 53 Africa countries:
27 belongs to two RECs;
18 belongs to three RECs;
One country belongs to at least four;
Only 7 Africa countries hold membership to 1 RECs.
 The multiple membership:
Constraint to economic efficiency;
Endanger collective vision of Africa Economic Community;
Fragmented economic spaces and approaches to RI;
Increased cost of membership in RECs;
Contradictory obligations/loyalties for member countries;
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Inconsistent objectives & conflicting operational mandates.
2. Why Africa Integration is Different? (Cont’d)
 Membership in more than one Custom Union is
technically impossible.
 In addition to overlapping problem, the following points
are identified as a problem in regional integration:
Lack of complementarities;
Limited market size;
Inadequate infrastructure;
Absence of a system composition for losers;
Structural constraints;
Lack of political commitments;
Lack of effective supra-national institutions.
 Does this mean lack of political will?
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2. Why Africa Integration is Different? (Cont’d)
 The potential gains of rationalization includes:
Efficient allocation of resources;
Increased trade between member countries and countries
outside the region;
Gain in the economies of scales;
Strong negotiating positions;
Welfare gains;
Improved productivity;
Higher wage;
Policy credibility;
More efficient provision of public goods;
Fewer regional conflicts.
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3. State of Play in COMESA, EAC and SADC
 COMESA has 19 member states:
14 member states participate in COMESA FTA
4 are members of EAC
8 are members of SADC
Annual intra-COMESA trade grew by 20% (2000-06)
Already a customs union
 EAC has 5 member states:
It’s is already a common market.
Privilege Uganda and Tanzania to get access in the Kenya
market beginning to 2010
4 are members of COMESA
One member is part of SADC
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Intra-EAC trade increased by 42% (2004 to 2007).
3. State of Play in COMESA, EAC and SADC (cont’d…)
SADC has 15 member states:
8 belongs to COMESA; 1 is member of EAC and 5
are members of SACU
Intra-SADC trade accounts 20% of total SADC trade.
South Africa accounts for majority of the trade flow.
This paper assumes eliminating overlapping
membership will significantly improve the
effectiveness and efficiency of the RECs.
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3. State of Play in COMESA, EAC and SADC (cont’d…)
Products
Common
External Tariff
Proposed
date for
CET
Proposed date
for common
market
EAC
Raw
materials
0%
January 2005
Capital
goods
0%
January 2005
Intermediate
s
10%
January 2005
Finished
25%
January 2005
COMESA
Raw
materials
0%
June 2009
Capital
goods
0%
June 2009
Intermediate
s
10%
June 2009
Finished
25%
June 2009
Proposed date
for monetary
union
4. Basic Economic Structure of the three RECs
 COMESA, EAC and SADC comprises nearly half of African
States
 Population: more than half billion (535.32 Million in 2006)
 GDP per capita for COMESA-EAC-SADC: 1522 USD (2006
estimate)
Highest ($): Libya (7067) and Seychelles (7005).
Lowest ($): D.R.C. (91), Burundi (101) and Malawi (144).
 On Average, between 2000-2006, (as a bloc):
COMESA GDP increased by 3.02%
EAC GDP increased by 4.61%
SADC GDP increased by 3.93%
Best performance: Angola (10.6%),
Mozambique (7.4%)
Sudan
(7.5%),
4. Basic Economic Structure of the three RECs (Cont’d…)
 Agriculture contributed 23% of COMESA-EAC-SADC GDP
(2001-2006)
Highly agriculture dependent economies: D.R.C., Comoros
and Ethiopia (> 45 per cent)
Less dependent: Botswana, Seychelles, South Africa, and
Djibouti (< 4%)
 On average, industry contributed 26 per cent of COMESAEAC-SADC GDP (2001-2006)
Highly dependent: Angola (68%) and Botswana (55%)
Least industrialized: Comoros (12%) and Ethiopia (14%)
 Service contributed to 47% of GDP and grow by 4% (2000
– 2006).
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5. Methodology
Data and model
The scenarios
Descriptive results of the base year
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5.1. Data and Model
 GTAP model is used to investigate the cost-benefits of
establishing a Grand COMESA-EAC-SADC (CES) and
Grand CES-EU FTA.
 GTAP Africa database employed
A special version of GTAP 6 benchmarked to 2001
Include 57 sectors
Cover 39 regions
Of which 30 of them Africa countries/regions
Significantly improve the coverage of Africa
countries/states
Constructed by giving sufficient emphasis on RECs in
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Africa, which facilitated our analysis.
5.1. Data and Model (Cont’d…)
EAC
Tanzania
Kenya
Uganda
COMESA
Egypt
Ethiopia
Sudan
Madagascar
Rest of COMESA
Madagascar
SADC
Botswana
South Africa
Rest of South Africa CU
D.R.C.
Malawi
Mauritius
Mozambique
Zambia
Zimbabwe
Rest of SADC
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5.2. Scenarios
Two scenarios are constructed to simulate the
possible impact of Grand CES and CES-FTA.
Scenario I: Grand CES in which all tariffs among the
EAC, COMESA and SADC are removed for all traded
commodities and standard GTAP closure is assumed.
Scenario II: Scenarios I but with unemployment
closure.
Scenario III: Grand CES – EU FTA (unemployment
closures). Under this scenario, all tariffs are removed
with the exception of agricultural commodities in CES.
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6. Results – Income changes
Percentage Change in GDP
2.25
Change in Percentage of GDP
Percentage
1.50
0.75
0.00
-0.75
EAC
COMESA
CES FTA-1
CES FTA-2
CES-EU FTA
SADC
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6. Results – Welfare results
 Substantial welfare change is observed under the three
scenarios.
 For EAC:
CES-FTA 2: EV increases by 90 Million USD
CES-EU FTA: EV increases by 116 Million USD
As expected, the main gain comes from allocative efficiency and
endowment effects
There is also an improvement in TOT under CES-FTA 2
 For SADC:
CES-FTA 2: EV increases by 966 Million USD
CES-EU FTA: EV increases by 2401 Million USD
Positive gain in allocative efficiency, endowment effects and TOT.
6. Results – Welfare results contd…
 For COMESA:
CES-FTA 2: EV decreases by 47 Million USD
CES-EU FTA: EV increases by 532 Million USD
Results indicate a likely decline in allocative efficiency
under CES-FTA 2
TOT deteriorates under CES-FTA 2 and CES-EU FTA
Positive gain allocative efficiency under CES-EU FTA.
Positive gain in endowment effect in CES-FTA 2 and
CES-EU FTA
 EU improves consumer welfare.
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6. Results – Sectoral VA in EAC
2.40
Percentage change in sectoral value added, EAC
Percentage
1.40
0.40
-0.60
-1.60
-2.60
CES FTA-1
CES FTA-2
OthServices
TransComm
Util_Cons
HeavyMnfc
LightMnfc
TextWapp
ProcFood
Extraction
MeatLstk
GrainsCrops
-3.60
CES-EU FTA
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6. Results – Sectoral VA in COMESA
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6. Results – Sectoral VA in SADC
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6. Results – Export view
Percentage change in export
EAC
COMESA
SADC
CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTA
GrainsCrops
1.7
5.01
1.33
10.9
0.32
7.54
MeatLstk
3.08
6.18
1.47
24.88
1
77.53
Extraction
-1.76
0.41
0.2
2.85
-1.8
-2.29
ProcFood
2.89
10.5
1.27
8.57
6.72
50.72
TextWapp
10.92
15.76
1.04
8.46
8.15
5.7
LightMnfc
14.08
14.13
3.8
15.66
0.86
-0.83
HeavyMnfc
11.66
11.62
1.89
15.29
2.34
-1.48
Util_Cons
-0.17
3.94
0.33
6.65
-0.92
-1.78
TransComm
-1.11
1.1
0.25
3.49
-2.52
-4.65
OthServices
-1.17
1.3
0.3
3.5
-3.17
-5.7
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6. Results – Import view
Percentage change in import
EAC
COMESA
SADC
CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTA CES FTA-2 CES-EU FTA
GrainsCrops
7.64
6.78
0.18
-0.76
5.87
12.27
MeatLstk
10.4
8.48
0.08
-0.89
3.84
9.2
Extraction
1.73
-1.39
1.44
8.82
1.31
-0.85
ProcFood
9.51
15.76
0.93
9.74
6.19
13.56
TextWapp
3.86
5.19
4.54
29.73
5.4
9.8
LightMnfc
2.4
6.26
0.26
5.75
3.65
14.3
HeavyMnfc
2.77
5.72
0.3
5.58
3.52
8.07
Util_Cons
1.05
-0.75
-0.1
-1.23
1.13
1.94
TransComm
0.95
0.13
-0.09
-1.46
1.9
3.87
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OthServices
0.83
0.06
-0.07
-1.17
2.08
4.2
7. Concluding remarks
 Overall, for the group of 26 countries, the formation of
Grand CES FTA might have substantial benefits.
 However, the benefit might not benefits the groups equally.
 SADC appears to drive most of the benefits followed by
EAC and then COMESA.
 This might be partly due to the initial conditions SADC has
(e.g. relatively least protected)
 This imbalance suggests that as the three RECs moves
towards the creation of Grand CES, they should also initiate
cooperation in other areas.
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7. Concluding remarks
 In other words, the CES Tripartite Framework should not
only focus on the realisation of a harmonized trade
regime, but should work towards measures that would
address supply side constraints in each of the RECs, e.g.
through joint infrastructure projects among other measures.
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