How can Africa tap into Regional Integration to increase trade among member states?

By  Alex Thomas Ijjo, PhD Senior Research Fellow EPRC

Regional integration in Africa holds the key to increasing intra-African trade and growing economies across the continent.  In fact, there is evidence of trade creation in relation to the East African Community’s (EAC) integration, according to a forthcoming study by Shinyekwa and Othieno of Economic Policy Research Centre (EPRC).  The researchers not only find that trade will increase, but that regional trade will grow in importance relative to trade with traditional partners such as the US and the EU.
 

Economic integration among countries with similar economic characteristics has been questioned by conventional trade wisdom in the belief that such integration arrangements are more likely to “divert” rather than “create” trade among the partner states. This school of thinking fueled doubts regarding the trade prospects entailed in “South-South” regional integration initiatives. In addition, intra-African trade has been uniquely constrained by the legacy of colonial trade patterns and poor infrastructure designed to serve colonial mercantilist interests rather than regional trade; rampant non-tariff barriers; and binding supply-related constraints. These bottlenecks have jointly undermined Africa’s potential to trade with itself.  In fact, current intra-Africa trade is estimated at only 11 percent of total African trade, compared with intra-Asian trade, which is estimated at 50 percent of the trade on that continent.

Despite these stifling constraints, the potential for intra-African trade does exist. In its report entitled “Defragmenting Africa: Deepening Regional Trade in goods and services,” the World Bank recently acknowledged the immense but unexploited potential for intra-African trade. Another study entitled “The African Growth and Opportunity Act: An Empirical Analysis of the possibilities post 2015 by Africa Growth Initiative (AGI) at Brookings, projects high growth in intra-African trade under a Continental Free Trade Area (CFTA). As an indication of the importance of the issue, the African Union devoted its 19th Summit in 2012 to the question of how to boost intra-African trade to the benefit of Africans. Africa’s share of global trade is a mere 3% while current “Intra-Africa” trade is estimated at only 11% of total African trade whereas intra-Asian trade stands at 50%.

The EPRC study brings additional evidence of a shifting trade pattern in the East and Southern African region. Shinyekwa and Othieno Trade in their study “Trade Creation and Diversion Effects of the East African Community Regional Trade Agreement”, find evidence of trade “creation” rather than “diversion” in relation to the East African Community (EAC) integration and growing relative importance of regional trade in the EAC vis-à-vis traditional trading partners such as the EU and the US. Closer scrutiny reveals the great potential for intra-African trade especially in agricultural commodities like maize, rice, beans and others consumed throughout the region and trade in other goods and services between cross-border but otherwise neighboring areas.

How can Africa tap into and actualize such potential to the benefit of its people?  In terms of policy, regional integration supported by an aggressive infrastructure investment programme to link up African nations is key. In addition, the development of efficient and reliable productive capacities in line with national comparative advantages and institutional capabilities to ensure competitive product quality and standards could greatly boost intra-African trade. Regional integration is not only compatible with the provisions of the World Trade Organization (WTO), but also an important launching pad for effective participation in a fully-fledged competitive global trade seen to be instrumental in the quest for overall welfare and prosperity.  Intra-African trade therefore has the potential not only to connect African economies, but also spur economic growth and development in the continent.