AFRICANS UNITE

The African Union summit in January takes steps towards building an African economic community amid global economic uncertainty.

By Joseph Senona

            When the leaders of the now 54 strong African Union (AU) Member States met on 29-30 January 2012 for their 18th Ordinary Summit, the mood was rather cordial. This was rather encouraging considering that this time last year tensions were high; thanks to the Arab Spring and its discontents.

            As if to rekindle relations, this year’s Summit focused on the common goal of speeding up economic integration and in some ways the unity of the continent, which took some hard knocks last year.

            The theme for this year’s Summit was “Boosting Intra-African Trade”, with the sub-theme gyrating around efforts to launch a Continental Free Trade Area (CFTA) sometime in the near future. The Summit declaration mentions

2017 as the tentative date to aim at.

            Apart from being politically easy topics to break the ice after a year of awkward hiatus; these two issues are actually discussed at an opportune time given the current global economic conditions.

            In fact, some of the leaders present at the AU Summit were arriving from the annual World Economic Forum (WEF) meeting in Davos. The latter meeting painted a rather gloomy forecast for the world economy in 2012.

            Among others, the Davos meeting put into sharp focus the economic crisis in Europe. The Euro-zone crisis, which sees Europe’s growth forecast estimated at a measly 1% in 2012, could have a serious negative effect on Africa in terms of export and Aid flows. Europe accounts for an estimated 38% of Africa’s non-oil exports and is Africa’s number one source of FDI. It is also Africa’s number one source of ODA (around 60%) and a fair share of Africa’s remittances comes from the Diaspora in Europe.

            To make matters worse, the US economy, which appear to be limping has turned inwards for self-preservation and revival. President Obama’s recent state of the Union address did not inspire confidence and offered little in terms of global leadership in such difficult times. Instead, it focused mainly on propping up US companies’ global competitiveness, including through the establishment of the Trade Enforcement Unit that will enforce global trading rules to benefit American companies.

            Meanwhile the slow death of the WTO Doha Round has added to the general gloom.

            All these global economic upheavals and tribulations point to one thing for Africa: instead of looking to the West or to the East, common sense dictates that Africa looks within in search of lasting solution that will lead to sustainable growth and development.

            The intensification of the African markets integration project by the AU leaders, through a dedicated Action Plan to boost Intra-African trade and achievement of a development friendly CFTA, is indeed an appropriate and positive response to such global economic ills.

            In truth however these recent AU discussions and declaration brought momentary nostalgia and déjà vu, given that, African leaders have since time immemorial been talking about Africa’s collective self sufficiency and reliance through endogenous growth led by Africans for Africans. African solutions for African problems they call it.

            Indeed history is littered with such declarations and resolutions, yet somehow growth and development seems to elude or is not happening fast enough to benefit the ordinary person on the street. Instead nowadays the mantra has become more eye catching; declaring Africa as the last frontier for development, with promising growth outlooks and chances of finding Alpha investments.

            The latest WEF statistics announced at the Davos meeting mentioned 5.3% growth forecast for Africa in 2012.

            To many African leaders gathering in Addis this would have been viewed as relatively encouraging given the depressing forecasts all around.

            While this forecast is only relatively encouraging, it would mean much more if the growth strides gained could in turn be re-invested on fast tracking economic diversification, industrialization and meaningful market and developmental integration rather than paying lip service to such issues.

            What is new about this latest Action Plan to boost intra-African trade and is the much-vaunted CFTA a panacea to unlock trade liberalization that will in turn foster incremental growth and development?

            The answer to this will probably be different depending on whom you ask. What is seemingly indisputable though is that these two economic integration initiatives duly implemented and managed can indeed unlock the potential of intra-African trade; promote resource allocation; expand opportunities for investment; facilitate technology transfer; and enhance standard of living.

            The main thrust of the proposed Action Plan is a consolidated list of trade policy programmes and activities that should be implemented in the short-term (under 3 years); medium term (3-7 years) and long term (over 7 years). The seven areas include: Trade policy; Trade Facilitation; Productive Capacity; Trade related Infrastructure; Trade Finance; Trade Information; and Factor Market Integration.

            Already, though, there are pockets of quality finished products and services produced within the continent, yet this products seem to enjoy market access outside the continent more than they do local markets.

            Intra-African trade is estimated to be somewhere in the region of 10-13%. This is quite modest compared to an estimated 60%-70% in Europe before the crisis, and 40%-45% in the Asian region.

            Interestingly, quite a significant number of African countries do count Africa as an important and sometimes number one market for exports and source of imports.

            The main challenge, as the AU Action Plan observes, is the lack of a diversified export basket and competitiveness; meaning that at the current rate the continent heavily produces homogenous and mainly low value commodities in the primary sector. The latter is compounded by Africa’s too many small and fragmented market economies; a factor that affects demand and supply.

            Apart from these two intrinsic systemic challenges, there are other secondary challenges that have the effect of discouraging even experienced traders. These include lack of proper cross border infrastructure, prohibitively high tariffs, and multiple Non Tariff barriers, including complicated rules of origin, corruption at customs borders and cumbersome regulatory requirements or lack thereof.

            Recognizing all these challenges, the AU Summit Action Plan takes a holistic view by enjoining its member States to fully implement continental initiative such as the Action Plan for Accelerated Industrial Development in Africa (AIDA) and Programme for Infrastructure Development in Africa (PIDA) on the one hand.

            On the other hand the ultimate continental FTA is envisaged to ensure that Africa overcomes the challenge of small and fragmented markets to take advantage of the economies of scale flowing from the bigger integrated markets.

            The CFTA is also envisaged to reinforce continent-wide inter-industry value addition chains and complementarities capable to propel Africa towards achieving regional and global competitiveness.

            In some ways the hope is that the processes of industrialization and of improving cross-border infrastructure together with liberalization of trade under the proposed CFTA will somehow become mutually supportive and re-enforcing to the point of forging endogenous growth and development.

            To skeptics, this may very well appear to be old wine in a new bottle. In truth it is, except this time around the approach is not squarely market integration as outlined in the famous Abuja Treaty. There is a distinct attempt to fuse both market and functional elements of integration.

            The arduous task ahead for all participants is to structure and negotiate a CFTA that not only opens up markets but also fosters developmental integration and an increased competitiveness across the 54 AU member States. In so doing participants have to remember that choosing appropriate sequence, structure and strategy for economic integration is critical in determining whether or not integration will succeed in yielding welfare gains equitably to all member States.

            Furthermore, while the current declaration towards a CFTA and boosting intra-African Trade is by all accounts paved with good intentions, it should be remembered that such good intentions alone, as seen in past declarations, are insufficient.

            The process of continental integration and development is expensive and requires enormous financial resources to execute.

            For it to be a truly pan African integration development agenda, championed by Africans and collectively owned by Africans for Africans, then Africans themselves have to take responsibility for making it a reality.

            The challenge ahead for the leaders coming back from the AU Summit therefore is to inspire the much talked about wealth, including the human capital of Africa towards executing, operationalising and realizing the overall development agenda of the continent expressed in many declarations before.

            After all, increased intra-African trade and CFTA are but a means to an end, and will not directly address, Inequality, Unemployment, Poverty and HIV/AIDS, which are the things that really matter to the downtrodden of Africa.

            As a result, visionary and missionary selfless leadership together with an inspired followership should be cultivated going forward. Failure to do so will only make the envisioned African Economic Community a hollow ideal.  – Third World Network Features.

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About the writer:  Joseph Senona is a South African international trade policy analyst working in the Department of Trade and Industry.

The above article is reproduced from the South Bulletin Issue 59, 12 March 2012.

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