Transcript Regional integration is an effective means for

REGIONAL INTEGRATION:
CONCEPTS, ADVANTAGES, DISADVANTAGES
AND LESSONS OF EXPERIENCE
Lolette Kritzinger-van Niekerk
Senior Economist
World Bank: SA Country Office
Central Bank of Mozambique
May 2005, Maputo, Mozambique
OUTLINE
• Why Regional Integration?
• What is Regional Integration
• Pre-conditions and Principles for Regional Integration
• Some Observations on Regional Integration in ESA
Why integration in Sub-Saharan Africa?
Africa is the most fragmented continent
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47 small economies in SSA = Belgian economy or 50% of Spai
Integration helps overcome fragmentation
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Create larger markets to permit economies of scale,
wider competition and increased foreign investment
Accelerate opening of economies to the rest of the world
Enhance credibility of national reform through lock-in
policy mechanisms
Strengthen unity for international negotiations
Reduce/resolve inter-state conflicts
Why integration in Sub-Saharan Africa?
• Traditional gains from RIAs
– trade gains
– Increased returns and competition
– Increased Investment
• Non-traditional gains from RIAs
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Lock in to domestic reforms
Signaling
Insurance
Coordination and bargaining power
Security
Regional Integration & Trade
an effective means for accelerating trade reform in Africa?
• Empirical evidence suggests
– UTL is superior to trade blocs
– N-S RIAs are likely to be superior to S-S RIAs
• Thus guiding principle:
– Gains from S-S RTAs may be >
• with deeper RTAs (it  extent of trade diversion) &
• with  openness with rest of the world (generates usual ‘gains
from trade’
Regional Integration and Trade
an effective means for accelerating trade reform in Africa?
Most African countries are members of regional trade blocs
(FTAs or CUs) with a set of intra-regional and external trade policies (new trend
for open regionalism based on open and free market)

Serious implementation of RIAs rules by individual countries
would  lower, not higher trade barriers (“zero” intraregional tariff, and lower
average external tariff)
Example:
UEMOA – average nominal tariff went down from ~ 25% (pre-1996) to 12%
(2000). Intra-regional trade went up from ~10% (pre-1996) to to 14% (2000).
Tariffs remain high for countries that did not implement reforms seriously
(CEMAC, Nigeria).
Regional Integration and larger markets
an effective means for positive scale and competition effects?
• Empirical evidence suggests
– Diversification towards manufacturing requires: scale, low
transaction costs, “investment friendly” and “noticeable” economic
space. Implied growth in manufacturing will go a long way to spur
trade – regional as well as global – attract FDI and promote
regional investment
– However, positive scale & competition effects through UTL >
through RIAs, but then often easier to do regionally from a political
viewpoint – less competition, plus reciprocal
• Guiding principle are:
– Deeper regional integration: can help by enlarging and opening up
the economic space, driving down production and transaction costs.
– Broader substantive coverage than strictly ‘market integration’
may be required to address supply-side constraints
Pluses and Minuses of Regional Integration
‘Poland’
‘EU’
‘Brazil’
‘Argentina’
‘Burkin
a Faso’
‘Cote
d’Ivoire’
‘Kenya’
‘EU’
POLITICAL:
Security
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Bargaining
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Being noticed
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Policy lock-in
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Cooperation
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Scale and competition
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Trade diversion
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Fiscal
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Trade and location
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Technology transfer
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ECONOMIC:
What is regional integration ?
Integration understood to have three dimensions
Substantive
coverage
Supranationality
(depth)
Geographic
scope
GEOGRAPHIC SCOPE: RIAs in AFRICA
AMU
Algeria
Libya
Morocco
Tunisia
ECCAS
São Tomé & Príncipe
Ghana
Nigeria
Benin
Togo
Côte d’Ivoire
Guinea-Bissau
Liberia
Sierra Leone
COMESA
IGAD
Mauritania
ECOWAS
Conseil de
l’Entente
Nile Basin
Initiative
CEMAC
Somalia
Cameroon
Central African Rep.
Gabon
Chad Equat. Guinea
Rep. Congo
Cape Verde
Gambia
Djibouti
Egypt
Burundi*
Rwanda*
Niger
Burkina Faso
Ethiopia
Eritrea
Sudan
DR Congo
Mali
Senegal
Kenya*
Uganda*
Angola
EAC
Guinea
WAEMU
ACRONYMS
Mano River
AMU:
Arab Maghreb Union
Union
CBI:
Cross Border Initiative
CEMAC: Economic and Monetary Community of Central Africa
CILSS:
Permanent Interstate Committee on Drought Control in the Sahel
COMESA: Common Market for Eastern and Southern Africa
EAC:
East African Community
ECCAS:
Economic Community of Central African States
ECOWAS: Economic Community of Western African States
IGAD:
Inter-Governmental Authority for Development
IOC:
Indian Ocean Commission
SACU:
Southern African Customs Union
1/ Tanzania is also a member of the
SADC:
Southern African Development Community
Nile Basin Initiative
WAEMU: West African Economic and Monetary Union
CILSS
Tanzania1*
Malawi*
Zambia*
Zimbabwe*
SACU
South Africa
Botswana
Lesotho
Mauritius*
Seychelles
*
Namibia*
Swaziland*
SADC
Comoros*
Madagascar*
Reunion
Mozambique
* CBI
IOC
Substantive Coverage
•
Problems whose solutions lie in a regional approach and less at problems
that are common to all the concerned countries. Three main categories of
regional issues:
•
Regional commons
which have no real national borders, such as certain infectious diseases (e.g. malaria) or air
pollution.
•
Public goods with trans-boundary implications
e.g. cooperation in the management of shared natural resources (e.g. watersheds and
international rivers), or regional safety and security, requiring participation of all
countries to increase likelihood of success of any approach. Imbalance between individual
country costs and benefits may hamper progress on cooperation
•
Sectors which are best tackled through a regional integration approach
also due to fragmentation
e.g. convergence of macroeconomic policies harmonizing legal and regulatory
frameworks; and improving scale and competition through the integration of
infrastructure and markets for goods, finance, labor, and energy. Cooperation of all the
countries greatly enhances the effectiveness of the sector.
But still differences in range depth of sector/issue coverage among RIAs
Depth of Integration
• Cooperation
• Harmonisation
• Integration
Pre-conditions for successful Regional Integration
Political
 Domestic peace/security in countries
 Political and civic commitment and mutual trust among
countries
Economic
 Stabilize: Minimum threshold of macro-economic and
financial management in countries (price stability, realistic
real exchange rates, etc.)
 Sufficiently broad national reforms to open markets
Key Principles for Successful Regional
Integration
• Openness: National and regional markets too small: openness
to the rest of the world essential

Subsidiarity: Regional organizations should do only what
national governments cannot do as well

Private sector leadership: Integration must be for the people;
private sector is the engine of integration

Pragmatism: Variable geometry (countries join when ready and
appropriate); variable speed (not all issues simultaneously);
variable depth (degree of supranationality)
Concluding Observations
Regional Integration in ESA
• Major Common Challenges
– Political stability, water vulnerability and HIV/AIDS pandemic
• Overlapping Membership Issues
• Institutional Issues
• Policy Design Issues
• Risk of Polarization