Crossing borders and removing barriers

Colin McCarthy questions the approach to regional integration in Africa

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Since independence, African governments have embraced regional integration, and have concluded a large number of regional integration arrangements (RIAs). Yet, intra-regional trade remains comparatively low. Although the causes of the failure have been reviewed extensively, little attention has been given to whether the paradigm that underlies the African approach to integration is appropriate.

The customs yard near the border post at Chirundu on the border between Zambia and Zimbabwe. Every day hundreds of trucks try to cross this border, but drivers often have to spend days, even weeks, waiting for customs clearance | Photo: Gideon Mendel/Corbis

African governments typically pursue the linear model of regional integration, beginning with a free trade agreement and ending with an economic union with a currency union as the highlight. However, it is questionable whether this approach addresses the need for economically marginalized countries, many falling in the UN’s Least Developed Country (LDC) category, to overcome the obstacles that they face in trying to catch up with the developed world.

The limitations of RIAs

An RIA in the form of a free trade agreement reduces the transaction costs of trade by removing a border barrier, namely the customs duty. The tariff is undeniably an important barrier at the border but there is abundant anecdotal evidence that the aggravation experienced at borders is perhaps more onerous. This might be because of management problems at border crossings or purely because documentation and procedures are not standardized. For landlocked African economies, the aggravation is exacerbated by the need to cross multiple borders.

Many behind-the-border trade constraints are also not addressed by formal RIAs. Given the limited availability of cheap transport on navigable inland waterways, the logistical costs of trade in goods are high. This is exacerbated by poorly developed transport systems that were designed in colonial times to transport primary products to port, resulting in poorly developed cross-country connections and some of the highest transport costs in the world.

Furthermore, business contracts, even those as simple as orders to purchase or decisions to sell, require information on comparative prices and depend on fast and low-cost access to reliable market information, including information on the credit worthiness of potential clients. Yet, most sub-Saharan African (SSA) countries lack the skills and capital to establish and operate sophisticated modern communication systems, and don’t have the market size that will allow viable business publications as a source of market information. These barriers obstruct trade with the rest of the world, but their impact on regional trade is particularly pernicious. Paradoxically, information on industrialized markets is more readily available than information on business opportunities in the region. The consequence is that businesses are discouraged from expanding beyond maintaining established business relations with suppliers and buyers in developed economies.

Relevance of regional integration

A regional free trade agreement removes the tariff, the first formal, World Trade Organization-compliant step that launches a process of regional integration. But experience has revealed that even this step is a difficult and often time-consuming process.

Taking the next step of the linear model, by establishing a customs union, brings forth new problems. Negotiating and implementing a common external tariff (CET) is complex, and further complicated by the need to design and establish the supranational institutions and management practices required to manage the CET. If the planned tariff structure is simple in design, for example a four-band tariff, and the categories of tariff lines per tariff band are sensibly demarcated, the management of the customs union tariff might not raise many problems. However, in SSA, trade taxes are an important source of revenue and consequently the collection and distribution of customs revenue could prove problematic. Difficult changes have to be made, without a commensurate benefit from lower trade barriers.

Another limitation derives from the fact that Africa’s RIAs deal with trade in goods and, as such, do not cater to services. Trade in services has become a substantial component of international trade, and for many developing countries, an important source of foreign exchange earnings. But services also facilitate trade in goods, which cannot take place without supporting commercial, financial, professional, and transport and communication services.

The relevance of an RIA and a formal commitment to the linear model become even more questionable considering the weak capacity of the typical African economy to produce goods and services that can be traded in the region. Moving a region through successive stages of deeper regional integration without developing the capacity in participating countries to produce tradable products will be of little benefit. This seems to be the proverbial elephant in the room of African regional integration.

Re-thinking the RIA approach

To question the process of regional integration in Africa is not to deny the importance of the regional factor in economic development. Resources in the widest sense of the word are too scarce and the economic challenges facing the large number of small and/or landlocked nations too serious to ignore the necessity of a regional perspective. But concern needs to be expressed about the architecture of African RIAs that is noted for poor implementation of ambitious roadmaps of deeper integration.

In time, lack of progress becomes its own constraint. All the talk and planning cannot prevent the development of an underlying sense of cynicism which itself impedes progress. It is not surprising that after more than 40 years of rhetoric on grand integration schemes and ambitious roadmaps along the linear route to economic union, real integration remains an evanescent goal.

Cultivating a commitment to regional integration, based on schemes that will contribute to the development of competitiveness and capacities on the supply-side of economies, requires a more realistic approach, characterized by incrementalism, coordination and sound national development efforts and policies. A first step would be the removal of the barriers to intraregional trade, but in full recognition of the fact that tariffs may be a minor constraint to regional trade. The development of transport links through coordinated investment in infrastructure, investment in communication services, and the standardization and simplification of customs procedures at borders, should complement tariff liberalization in encouraging trade by lowering transaction costs.

But, in considering the removal of barriers to trade, it is necessary to adopt a broad approach that includes trade in both goods and in services. With due recognition given to the national need to regulate financial and professional services, cross-border growth of service flows is not only important in itself, but also for facilitating trade in goods.

Finally, a country can only trade in the region, and globally, if it has the capacity to produce goods and services that can be sold at competitive prices. Growing trade, therefore, requires a focus on the principal factors that contribute to an expansion of the supply-side of economic activity.

Surely, almost all governments would claim that they are pursuing these “motherhood and apple pie” goals, but in the real world of practical politics and administration many SSA states do little to achieve them. Taking the first sensible steps in developing the supply-side capacity of the economy and complementing these with a removal of barriers to regional trade is important. Regional coordination and formal integration arrangements can contribute in this regard, but these should be modest in design, and strong on commitment and implementation. Most important of all is the recognition that development starts at home. Expanding the production frontier of an economy must, in the first place, be seen as a national effort, independent of any regional integration arrangement. Regional integration exercises cannot be a substitute for sound national development initiatives.

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● Colin McCarthy is an associate of the Trade Law Centre for Southern Africa (TRALAC) and Professor Emeritus at the University of Stellenbosch. This article is based on “Reconsidering regional integration in sub-Saharan Africa”, published in Supporting Regional Integration in East and Southern Africa – Review of Select Issues, TRALAC, 2010, available here.