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  1. AFRICAN REGIONAL ECONOMIC INTEGRATION ECON 3510 Carleton UniversityJune 5, 2014Source, Text, Chapter 19

  2. Agenda • How does REGIONAL ECONOMIC INTEGRATION Work? • Advantages and Potential Disadvantages • Forces promoting economic integration • Types of Integration Scheme • Africa’s Experience with Economic Integration • Some Specific African Integration Schemes

  3. 1. How does REGIONAL ECONOMIC INTEGRATION Work? It makes possible productivity improvements, • i.e. it permits more output to be squeezed out of given quantities of human, natural and capital resources.

  4. 1. How does REGIONAL ECONOMIC INTEGRATION Work? It thus can contribute to • increasing real incomes in a country, thereby permitting • improved human development by individuals and families for themselves, and • by governments through increased taxation and social expenditures (health, education, social security, infrastructure etc.)

  5. 1. How does REGIONAL ECONOMIC INTEGRATION Work? Continued: It increases the relevant size of the market • A larger population, with greater purchasing power • Permits a broader range of economic activities to become established and to function efficiently • Especially relevant for Africa

  6. It can also promote economic development through • strengthening the tax base of governments so that • more can be invested in public goods or other purposes directed more specifically at economic development. The economic expansion facilitated by economic integration maymake possible public investment in safeguarding the environment – but maybe not.. Does Economic Integration promote stability and peace among countries? Evidence and argumentation pro: Evidence contra:

  7. How does Regional Economic Integration promote productivity improvements?

  8. How does Regional Economic Integration promote productivity improvements? 1. Permits Implementation of Economies of Scale and Consequent Resource Saving (human, natural and capital resources): • Larger plant size • Larger enterprise size • Increased length of “production runs” • Increased intra-industry specialization • Increased agglomerative economies. These are some of the “dynamic benefits” of improved rationalization of economic structure.

  9. Recall: “Agglomerative Economies” (in large-scale economic or market areas) providing cost advantages of large urban scale to producers, including • Developed infrastructure generally; • Developed transport infrastructure • Lower transport costs for inputs and outputs; • skilled labor pools; • availability of necessary inputs, repair services, etc. • government services and bureaucracy; • proximity to major markets; • diversified range of all economic activities • financial institutions, educational institutions • “amenities’ for citizens

  10. 2. Static Benefits: gains from comparative advantage from trade creation 3. Impacts of Increased Competition within the Integration Area: • Stimulates domestic product quality improvement; • Stimulates improvements in product quality and reductions in production costs. 4. Expanded Market Size can Promote Increased (and more efficient) Investment.

  11. 5. Strengthened Ability for the Region to develop successful “clusters” of economic activities and thus to integrate and compete in the international economy 6. Strengthened Ability for the Region to Face External Competition for its own domestic markets. 7. Reversing the historic fragmentation of the continent into 55 countries, with the economic disadvantages that this generates . Thesegains can be greatest for small country partners

  12. 2. POTENTIAL DISADVANTAGES OF REGIONAL INTEGRATION • Costs of Transition to Larger Markets: Some industries or types of economic activity may not be able to compete with imports. The result is then labour displacement, economic dislocation, and unemployment. • Are these “costs” of economic integration borne by the workers and enterprises themselves, or does society share in their burden? • enterprise and industry restructuring costs;

  13. 2. Possible Longer Term Negative Impacts: • “agglomerative dis-economies” for some regions or countries • consequent loss of economic activity and employment; (e.g. the Maritime provinces in Canada?) 3. Trade diversion may harm some partners What is “Trade Diversion?

  14. 3. Forces behind the attempts to form larger economic communities: • Economic theory and argumentation • Problems with ISI; • Other regional integration experiences, esp. the European Union, but also the USA and Asian and L. American Demonstration effects • Political arguments: • peace and stability and • regional bargaining power

  15. 4. Types of Integration Scheme • Specific Functional Cooperation Agreement to cooperate for specific purposes (watershed management; transport, energy….) • Free Trade Area (FTA); Lowering and elimination of trade barriers between two or more countries; separate tariff structures for the rest of the world 2. Customs Union (CU) CU = FTA + Common External Tariff

  16. 4. Types of Integration Scheme, continued 3. Common Market (CM): Common Market = CU + Factor Mobility (capital & labour) 4. Economic and Monetary Union (EMU): EMU = CM + Single Currency (monetary &Exchange rate policy) 5. Political Union (PU) Political Union = EMU + Common foreign and security policy

  17. Obstacles to Successful Integration Achieving effective economic integration is complex and politically difficult. Why? • Vested interests of enterprise may object due to fear of competition from neighbors • Political or philosophical differences among neighboring countries e.g. East African Community with IdiAmin, Nyerere and Kenyatta

  18. 3. Trade Diversion may damage some partners and induce them to leave 4. Distributional Issues: fear that some countries gain disproportionately while others lose 5. Weaknesses in the supranational institutions

  19. 6. Infrastructural weaknesses prevent meaningful economic interaction 7. Unwillingness to sacrifice national sovereignty for supranational gains 8. Weakness of political will

  20. 5. Africa’s Experience with Economic Integration • Early ambitious “Pan-Africanists” and modest gradualists at Independence; • Leaders unwilling to sacrifice national independence so soon after achieving it. • A gradualist approach for some time, but with high “continentalist” aspirations

  21. 5. Africa’s Experience with Economic Integration, continued 4. Major difficulties have hindered progress 5. Antagonisms among countries 6. Logistic Obstacles: Infrastructure Gaps (see map) Physical Magnitude of Integration Task (see map)

  22. African Economic Integration Schemes • Southern African Development Community (SADC) • East African Community (EAC) • Economic Community of West African States (ECOWAS) • Economic Community of Central African States (ECCAS) • Common Market for Eastern and Southern Africa (COMESA) • Arab Maghreb Union (UMA) • Southern Africa's Common Monetary Area (CMA) • African Economic Community, (AEC)

  23. African Intra-Bloc Exports as a Per Cent of Total Exports Source: Text, p. 490 and World Bank, World Development Indicators, 2009. p. 349

  24. 6. Some African Integration Schemes A. Southern African Development Community (SADC) • Originally SADCC; Founded 1980; Originally: a defensive economic organization vs. apartheid South Africa • Re-founded in 1992 with S. African presence • Objective: a full common market • 200 million people; • GDP +/- $200 billion

  25. Southern African Development Community

  26. A. Southern African Development Community (SADC) • Good Internal transportation grid • Dominated by S. Africa • Successful expansion of intra-regional trade 1970: 1.4% of total 2007: 15.2% of total • Perhaps good prospects

  27. B. East African Community • Long pedigree Colonial era antecedents; Established in 1967 Dissolved in 1977 (IdiAmin era) Tanzania overthrew Amin in 1979 Re-founded in 1994 Rwanda and Burundi join • Population (2000) 86 million; GDP: $26 billion • Early Progress was limited due to Problems among Prime Ministers and political differences; especially with Idi Amin Perceptions that Kenya was gaining most

  28. East African Community, member countries

  29. B. East African Community • Significant success after reestablishment: Rapid expansion of intra-bloc trade 1970 1980 1990 2000 2007 16.9 8.9 13.3 17.6 20.4 • Will Southern Sudan join? Ethiopia?

  30. C. Economic Community of West African States (ECOWAS ) • Founded in 1975 • 15 countries • member states; 236 million people; +/- GDP of $70 billion in 2000 • Promotes functional cooperation in transport, ITC, industry, agriculture, energy and monetary policy

  31. C. Economic Community of West African States (ECOWAS ) • Nigerian dominance • 54% of population • 47% 0f GDP • HQ: Secretariat in Abuja Nigeria • Fund for Cooperation Development and Compensation to support the losers in the integration process

  32. C. Economic Community of West African States (ECOWAS ) • Substantial expansion of trade flows for a while: Intra-Block Trade: 1970 1980 1990 2000 2007 2.9 10.1 7.8 10.8 9.4 • Problem with Intra-Bloc Transportation (See Railway Map again) • Proposal to adopt a common currency; Now shelved given the problems of the Euro ?

  33. D. Economic Community of Central African States • Founded 1983 • Objective: full common market • Disparate levels of countries • Little improvement in trade volumes • Due in part to crises in member countries

  34. E. Economic Community of Central African States

  35. F. Common Market for Eastern and Southern Africa

  36. G. Southern Africa's Common Monetary Area (CMA)Lesotho, Namibia, South Africa, and Swaziland

  37. G. Southern Africa's Common Monetary Area (CMA) • Lesotho, Namibia, South Africa, and Swaziland • An instrument of Apartied S. Africa originally • Re-launched in 1986 • ,substantial trade expansion and economic integration • evidence that it has facilitated the development of a regional market • A relationship of unequals, now as before majority rule

  38. H. African Economic Community (The Community of Common Markets) Founded in 1991; The Sub-Saharan Integration Scheme, including all others except Mahgreb

  39. African Economic Community, including

  40. H. African Economic Community Ambitious objectives: • Promote ec., soc., & cultural development and integration • Establish a framework for the mobilization af all resources • Promote cooperation in all fields of human endeavour • Harmonize policies of all existing and future economic communities

  41. H. African Economic Community “Fund for community solidarity and compensation” Envisages rather complete union ultimately. Common currency; Common Central Bank, Pan-African parliament

  42. Conclusion: • Numerous attempted integration schemes; • Mixed results • Some schemes excessively ambitious, falter in implementation • Difficulties in establishing effective integration movements are immense • Success re integration is vital for Africa’s future; • Different approach: “step-by-step”, gradualist, “learning-by-doing,” “build on success” approach may be relevant