Development Problems in Africa

Spring 2006 Week 6: Trade and Regionalism in Africa

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Contents

– Trade Outlook – North-South to South-South Trade – Commodities – Trade Terms – Regionalism

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Trade Outlook

 African countries are still relying on primary goods whose prices have declined in the past, as predicted by Raul Prebisch in 1950s. His argument led to the import-substitution industrialization policy (see handouts).

 However, recent boost of the prices of primary goods have boosted economic growth of some African countries, yet the boost could be short-lived (see handout).

 African exports face protections of developed countries.

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Share in the World Trade

20 18 16 2 0 6 4 14 12 10 8 Asia Africa 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

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Source: IMF Int’l Finance Statistics

Gradual Changes of Trading Partners

 Originally, the African trade was mainly with European countries, but recently the trade with non-EU countries has increased (gradually).

 Notable, trade between African countries have been increasing especially with South Africa.  In the post-Apartheid period, from 1990 to 1995, the trade between SA and non-African countries increased from 14 to 21 billion.

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Regional Share of African Trade

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

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Others US Africa 1985 1996 Source: Taniguchi (2005) 1995 2000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1990

South Africa’s Trade with Others Export

Non-SADC African

Import

SADC Non-African 100% 90% 80% 30% 20% 10% 0% 70% 60% 50% 40% 1990 1995 1995 2000 2000

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Summary

 Many African countries have not succeeded in diversifying their export commodities and are facing a declining terms of trade.

 Even if barriers to international markets are removed, they will still need to rely on primary goods. Thus, they need to develop industries >> Prof. Sonobe’s course.  In addition, regional integrations have been establish inter-regional trade through regional integrations. Next, we focus on regional integrations.

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FASID Regional Trade

FASID Kenya-Uganda Border

FASID Kenya-Uganda Border 2

FASID Kenya-Rwanda Border

Type of Regional Integrations

1. A free trade area (FTA) occurs whenever two or more countries agree to lower and ultimately remove barriers to trade, while maintaining their respective external tariffs against other countries. 2. A custom union (CU) refers to an arrangement whereby two or more countries agree not only remove trade barriers among themselves but also maintain a common external tariff (CET) against products from other countries.

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Type of Regional Integrations

3. A common market (CM) is an arrangement thatobliges two or more countries to remove internal barriers, adopt common external barriers against trade from third countries, and promote the free movements of goods and services, labor, capital, and technology. 4. An economic and monetary union (EMU) requirements of CM.

is an arrangement that coordinate their economic policies in order to achieve a common currency, in addition to the 5. A political union (PU) so forth. is the final stage of regional integration, because it means that in addition to the cumulative obligations of an economic and monetary union, participating countries will share political decision-making over foreign policy, security policy, and

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Regional Integrations in Africa

No tariff within Common tariff to outside Free Inputs Movement Common Economic Policy Regional Support X X X X FTA O X X X CU O O X X CM O O O X ECOWAS UEMOA CEMAC EAC COMESA SADC SACU (ECOWAS) (UEMOA) (CEMAC) (COMESA) (SADC) EMU O O O O (EAC)

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Regional Integrations

A. African Economic Community (AEC) includes 52 countries, almost all African countries, was inaugurated in 1991, aims to be EU of Africa. B. Arab Maghreb Union (AMU) includes 5 North African countries, was inaugurated in 1989. C. Common Market for Eastern and Southern Africa (COMESA) includes 23 Eastern and Southern African countries, was established in 1993, aims to establish a tree trade by 2000, implement a common external tariff by 2004, and later a common market.

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Regional Integrations

D. East African Community (EAC) 1994. includes Kenya, Uganda and Tanzania, was launched in 1967 but was dissolved in 1977 because of charges and countercharges over unequal distributions of benefits. Yet, it is revived in E. Economic Community of Central African States (ECCAS) includes 10 Central African countries, was set up in 1983 and aims to promote financial and commercial cooperation by eliminating internal barriers and adopting a common external tariff. F. Economic Community of West African States (ECOWAS) includes 16 Western African countries, was established in 1975 to promote cooperation and development in economic, social, and cultural activity.

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Regional Integrations

G. Southern Africa Development Community (SADC) includes 14 South African countries, was funded in 1992 to defuse the potential economic threat from a more powerful post-apartheid South Africa. But South Africa joined the SADC in 1994.

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Regional Integrations in Africa

States Pop.

million GNP Billion US$ Year AEC COMESA SADC (incl. SA) AMU ECOWAS ECA ECCAS 52 23 14 5 16 3 10 659 380 200 77 236 86 90 313 170 170 130 70 26 19 1991 1993 1992 1989 1975 1994, 1967 1983

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AEC COMESA SADC (1994 SA) AMU ECOWAS ECA ECCAS

Interregional Bloc Export

in $million 1990 2000 in % of Total Exports 1990 2000 963 930 958 1533 229 163 1534 4419 1081 3331 504 181 6.6

2.8

2.8

7.8

13.3

1.4

6.0

12.2

2.3

10.8

17.6

1

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