Regional economic

integration continued
Brenton & Isik
Why the need for REI or cross border
trade
• Distribution of surplus production of staple foods
• Trade in basic manufactures (metal or plastic products) when incomes
are rising as World prices of these goods are higher or it is more costly
to import
• Regional production chains
• Raw materials can be processed here instead of exporting them…similar to
Asia issues
• Variety
• Untapped potential for exports (as inter regional trade is low)
Therefore a need to look at policy that
creates unnecessary barriers
• Simplifying cross border trade for small informal traders
• Aid with cross-border trade
• Reduce the amount of agencies at the border
• Increase professionalism of officials
• Support trade associations
• Non-tariff barriers removal (reduction in tariffs have not led to economic
development)
• Rules of origin
• Export bans
• Export and import licensing
• Reform regulations and immigration procedures
• To unlock the potential trade and investment in services
Composition of REI
trades
• Increase in trade with China
• Mostly primary commodities (low value added or capital intensive in nature)
• Still employment levels are dismal
• Need to move from these commodities to products which utilizes more people
• Maybe concentrate on improving conditions for informal firms and individuals by increasing
their opportunities to interact with the formal sector and by providng a path towards
formalization
• Low intra-regional trade
• If increased they are more likely to be labour intensive commodities traded
and more of a higher-valued nature when the intra-regional trade constraints
are relaxed for firms
• Could be increased by reducing the overlapping REI that exist… Different
trade regimes require different trade rules and increases costs as countries
need to adhere to multiple trade rules
• High transaction costs that exist in Africa
• The world has split its production into chains to reduce costs
• This has been aided by communication costs decreasing
Scope for cross border trade
• Similarity of endowments
• But does not affect agriculture due to the varying weather/seasons amongst African
countries
• Three quarters of the world output and there is an expectation that Africa’s food intake would
increase due to urbanization and its population growth
• Need therefore to address issues with small farm holdings who only receive 20% of the
market price for their products (issues of high transaction costs and poor harvest) reducing
the incentive to produce for the market.
• Lack of proper measurement of informal cross border trade
• Believe to be anywhere from 50-90% of formal flows…lots of untapped potential
• Basic manufacture sector growth as Africa develops
• These products are expensive to ship long distances
• Regional production chains
• Like Asia, Africa has inexpensive labour which provides a building bloc for a lower
cost destination for countries seeking to expand
• Movement away from specialisation in production and rather to efficiencies in
certain stages of production
• For instance RSA has the expertise, logistics and capital to compete globally while
smaller African countries could provide the cheap labour
• Therefore a need to remove restrictive trade barriers and restrictive policies
• Trade in services
• Uganda exporter of education service
• Nigeria financial institutions spread throughout the region where small countries
exists
• A need for cross border mobile banking to aid with payment services for informal
traders
Africa’s thick
borders
• More than 30 days to import and export goods across borders in SSA
• DRC-Rwanda (adding 1549km and 35hours)
• Table 1.1
Table 1s1 > Trading across Borders in SSA is Costly and Tin1e Consuming

US$ per co tainer cost

_,. to import
EAP 22.7 890 24.1 935

ECA 26.7 1,65 28.1 1,845

2 20.1 1,488
LAC 18.0
1,228 24.2 1,229
MEN 20.4
1,049 11.4 1,106
A 10.9
1,059 32.5 1,74
OECD 32.3 4
11,512
SS _...,.._.._.............- ........_
SAR 323. ....,,..--w_..._ _. ,. ,.
,....,._l+ft.......
,. _. ,._. ..,."" .,. _- -38- ·· - · 2,492
. . _,'.
A _960 2
• Table and examples show that costs of moving between borders is
high
• Transit times are uncertain and long

• Why?
• Large Infrastructure, transport, telecommunications and energy deficit
• About 20% of delay is infrastructure
• Rest is non-tariff barriers and poor trade facilitation
• Need therefore for both hard and soft (like regulatory reforms for quality
transport and logistics) infrastructure
• Costs of cross-border payments
• Lack or absent financial instruments and institutions
• High costs of exchanging currencies
• Carrying cash exposes traders to them or predatory behavior by officials
• There are new products and services introduced based on modern
technology to reduce transaction costs
• However, lack of interoperability resulting in market fragmentation
Removing non-tariff
barriers
• Impose unnecessary costs on producers that limit trade and increase prices
for consumers
• Reduces investments and brings about uncertainty in trade
• Therefore a need for establishing report mechanisms and monitoring
committees
• The idea is not to deregulate but rather to establish better regulation that
doesn’t compromise health standards but promotes regional competition
• So an inclusive (private investors too) and transparent approach is
needed with channels to dispute decisions made on regulations
• Common standards among African countries (harmonisation at regional
level)
Some more Examples of
NTBS
• Delays at borders raise costs
• Restrictive rules of origin limit preferential trade (onerous local
content requirements)
• Costs of certificates of origin
• Poorly designed technical regulations and standards
• Reliance on mandatory inspections and certifications
• National standards vs Regional standards
• NTBS that restrict opportunities for regional sourcing
• Trade permits, export taxes, import licensing
Concentration on manufacturing goods
• But what of services as a source of diversification
• As landlocked countries face high transport costs
• Services also aid growth
• Need to open services to trade
• Increase quality and reduce costs
• Reduce wastes, improve management and reduce operating costs
• Need to ensure trade liberalisation does not lead to transfer of ownership
from state monopoly to a private monopoly or national one to a foreign
monopoly
• Government intervention may be needed then
Some service issues/examples
• Lack of cross-border official payment systems
• Could be because of differences in regulatory framework for financial
institutions between countries in certain regions
• Lack of distributional services of a modern nature to allow small
farmers access to high value markets and accelerate the transition
form subsistence farming to market participation
•TRADE AND
POVERTY PAPER
SERIES 1:May 2015
RE
I
• Used to address growth and poverty issues
• To reduce poverty studies have shown a need to shift from low productivity to
high productivity activities within and across the agricultural, industry and
services
• Therefore a need for more structural approach as poverty is more likely a
resultant of low productivity
• So why linear integration
• Trade reforms have a positive impact on trade and growth with the benefits
eventually filtering into the poor segments of society
Linear model for Africa has faced several
limitations
• Weak regional trade and poverty figures
• Trade liberalization is seen as the most important aspect of it
• Assumes trade barriers is the main factor affecting regional trade
growth and eventual poverty reduction
• Example SACU
• Removal of trade barriers has only seen 7.5% intra-regional trade
• Assumes trade affects poverty but the reverse does not hold (one
directional)
• But does poverty not affect the ability of country to trade as for instance
productive capacities may be limited
Bigger issues than trade barriers and
differences from EU initial base
• High productive capacities of EU countries
• Infrastructure bottle necks (energy and transport) of Africa
• Institutional and structural foundations make it easier for EU
countries to integrate
• Weak links between regional organizations and national government
in Africa
• Therefore REI needs to be geared towards development (transformative
regionalism) than promote trade reforms
• Identify the most binding constraints of development and then ask how integration
can contribute in alleviating these constraints
• In term by addressing both trade reforms and transformation reforms the reduction
of poverty and inequality which occurs can further enhance trade
• Low productivity to high productivity activities (a reflection in higher real wages further aiding
poverty alleviation)
• This can only occur if transformative regionalism is strategic, coherent and
pragmatic (informed vision with steps to achieve it and indicators to
measure its progress)
• Government also needs to lead the process especially since the private sector cannot
provide effective leadership in all areas where integration is challenging
Transformative regionalism through Trading
Blocs
• Self read –ECOWAS/EAC/SADC transformative regionalism progress
Africa's way forward for transformative
regionalism
• Initially Africa has had several initiatives which have all failed
• IDDA I, First Industrial Development Decade,1982-1992
• IDDA II, Second, 1993-2002
• Alliance for Africa’s Industrialization, launched 1996
• Accelerated Productive Capacities Initiative, 2003/2004
• Accelerated Industrial Development of Africa (AIDA), 2008
• Don’t forget REI…SADC etc.
• Need to relook at REI process
• Yes have branched out into peace and security roles…but can leave that for
the African Union or other unions and concentrate on their main objectives
• Promote transformative regionalism as a rationale for REI as more
coherent integration agenda in Africa
• Allows more effective use of scarce financial and human resource
• Allows for alignment of strategies of the African Union with those of
national governments
• More pragmatic approach
• Realistic targets and deadlines
• Choice between markets vs states, export orientated vs import substitution,
agriculture versus industrial development…these choices are not as
independent as experience has shown
• Industrial policy needs to be geared to transformative regionalism
• At national level
• Investment to strategic sectors deemed important for structural change
• Unlock investment potential
• At regional level
• Coherence across industrial strategies and polices
• Industrial policy: government must provide support to entrepreneurs but also
challenge them to perform (enforced and established benchmarks)
• Consumer role
• African consumers tastes and patterns affect the type of good to be produced locally
and traded profitability by local entrepreneurs
• They need to appreciate and buy goods produced on the continent to create demand
• Need harness existing opportunities for industrial development…like
in agribusiness
• Nigerian example on tomatoes and tomato paste
• Need for large African developers to be driving forces
• Algeria, Egypt, Nigeria and RSA
• More active role
• Provision of finance and cross-border infrastructure
• Act as growth poles and promote development of regional production networks to
catalyze trade and investment for sustained development in Africa