There are essentially three points that I would like to make today – there is enormous untapped potential through regional integration in Africa to deliver poverty reduction and development gains; that we can take a fresh look at some regional integration initiatives if the continent is to become better integrated; and that the World Bank Group is here to support the continent’s governments and communities in this effort.
First – the challenge being faced and the opportunities that exist if these challenges can be overcome.
Regional trade integration has long been a strategic objective for Africa yet, despite some success in eliminating tariffs within regional communities, the African market remains highly fragmented. A range of non-tariff and regulatory barriers still raise transaction costs and limit the movement of goods, services, people and capital across borders throughout Africa.
Barriers to trade continue to limit the growth of trade throughout all African regional groupings. By imposing unnecessary costs on exporters these barriers raise prices for consumers, undermine the predictability of the trade regime, and reduce investment in the region.
Let me give you a couple of concrete examples of the costs that exist, based on our work:
If the residents of San Francisco faced the same charges in crossing the Bay Bridge to Oakland as do residents crossing the Congo River between Kinshasa and Brazzaville, a similar distance, they would pay more than $1200 for a return trip. As a result passenger traffic at this obvious focal point for cross-border exchanges between the two Congos is around five times smaller than that between East and West Berlin in 1988 – which was of course well before the dismantling of the Berlin Wall!
In southern Africa, a truck serving supermarkets across a border may need to carry up to 1600 documents as a result of permits and licenses and other requirements. Slow and costly customs procedures and delays caused by other agencies operating at the border, such as standards, raise the costs of trading. For example, one supermarket chain in Southern Africa reports that each day one of its trucks is delayed at a border costs $500 and it spends $20,000 per week on securing import permits to distribute meat, milk, and plant-based goods to its stores in one country alone.
We all know of other examples and evidence of the high costs of intra-African trade. We estimate that intra-African trade costs are around 50% higher than in East Asia, and are the highest of intra-regional costs in any developing region.
The result of these high costs is that Africa has integrated with the rest of the world faster than with itself.
Because of this greater focus on extra-than intra-regional trade, recent export growth in Africa has been driven primarily by commodities, with limited impacts on employment and poverty. This is of particular concern now that traditional markets in Europe and North America are stagnating.
Some of the opportunities that could come about through greater regional integration include:
- Bringing staple foods from areas of surplus production across borders to growing urban markets and food deficit rural areas. Indeed, Africa has the potential to feed Africa. But at present only 5% of Africa’s imported cereals come from other African countries.
- A significant amount of cross-border trade takes place between African countries at small scale and is not measured in official statistics. Allowing these traders, many of whom are women, to flourish and gradually integrate into the formal economy would boost trade and the private sector base for future growth and development and have swift impacts on reducing poverty.
- With rising incomes in Africa there are emerging opportunities for cross-border trade in basic manufactures such as metal and plastic products that are costly to import from the global market.
- The potential for regional production chains to drive global exports of manufactures, such as those in East Asia, has yet to be exploited. There are also opportunities to develop regional value chains around mineral commodities such as phosphates for fertilizers and regional processing of nickel and copper.
- And cross-border trade in services offers untapped opportunities for exports as well as better access for consumers to critical services such as health and education and firms to services such as accountancy and other professional services that boost productivity.
The potential is clear. With the right policies and with political will a great deal could be done to boost African integration.
This brings me to the second major point I would like to make – that we can go about regional integration in Africa in more effective ways that can have outsize, positive effects on the poorest people on the continent.
We believe that tackling barriers to intra-African trade can have disproportionate, positive effects on the poorest people. This makes greater African trade integration central to our own goal of ending poverty by 2030, and to the aspirations of African governments and communities.
To end extreme poverty, policies to increase the contribution of intra-regional trade to growth will need to be matched with a new effort to maximize the gains of trade for the poorest. This entails tackling constraints faced by the extreme poor – including those generated by rural poverty, gender inequality, fragility and conflict, and the nature of the informal economy. Regional integration can play a key role:
- In linking rural communities to markets to improve access to new technologies and to markets for the goods and services they produce,
- In leveraging trade and cross-border exchange to generate solidarity between communities in fragile states and enhance opportunities for sharing the benefits of growth and increasing prosperity.
- In providing a route for small firms to grow and increase their capacity to leave the informal sector and thrive in the economy.
- In assisting women in dealing with poverty by providing more opportunities for jobs and better returns from cross-border trading activities.
Rather than exporting minerals and fuels to distant markets, greater intra-African trade of goods and services would support more employment-intensive activity than exports from extractive industries. Greater intra-African trade is likely to have a more direct impact on poverty by creating opportunities for the poor who both produce and trade the basic foodstuffs that dominate intra-regional trade.
Currently, trade barriers mean that poor farmers in rural areas are denied access to markets in neighboring countries that would deliver higher returns. The opportunities for them to raise their productivity by using higher yielding seeds and greater application of fertilizers are stymied by restrictions which prevent the emergence of more efficient regional markets in crop inputs. And barriers at borders particularly afflict small-scale traders, preventing them from earning a living by catering for smaller, local markets across borders, where they have a comparative advantage. Most of these small scale, poor traders are women and their trading activities provide an essential source of income to their households. Their profit margins are small, and are reduced by every delay or extra charge they face. They are also vulnerable to abuse.
Taken together, the evidence is strong that facilitating greater intra-African trade will not only boost trade performance – but could have strong impacts on poverty reduction.
Looking ahead, our experience and analysis suggests a number of key messages to guide implementation of regional agreements in Africa:
- Effective regional integration is more than removing tariffs—it is about addressing on-the-ground constraints that paralyze the daily operations of ordinary producers and traders. To deliver integrated markets that attract investment in agro-processing, manufacturing and new services activities, we must work together to move beyond tariff reduction toward a more holistic process of deeper regional integration.
- This calls for regulatory reform and, equally important, for capacity building among the institutions that are charged with enforcing the regulations. This entails engagement with national institutions as well as those at the regional level.
- The integration agenda must cover services as well as goods. Why? Because services are critical, job-creating and productivity-enhancing inputs into the competitive edge of almost all other activities and are of particular importance in allowing firms to participate in regional and global value chains.
- Action is required at both the supra-national and national levels. Regional communities can provide the framework for reform, for example, by bringing together regulators to define harmonized standards or to agree on mutual recognition of the qualifications of professionals—imagine the benefits of allowing African doctors, nurses, teacher, engineers and lawyers to practice anywhere in the continent, regardless of the African country they come from. But responsibility for implementation lies with each member country.
There are many areas where the World Bank Group can support policy-makers in the region in this effort. This is the final message I would like to leave you with – we have been scaling up our work and are committed to doing even more on trade integration in Africa. Our support spans several key areas:
- Supporting implementation of regional trade agreements: Needless to say, the World Bank Group is ready to support effective implementation of regional agreements, the Tripartite Agreement and the Continental Free Trade Area - working in partnership with regional secretariats, the African Development Bank, the African Union, the United Nations Economic Commission for Africa, among others. The Bank Group focuses on delivering just-in-time technical advice for capacity building and leverages the instruments available to us, regional investment operations and a new instrument called a “Regional Development Policy Operation” to countries that decide to jointly implement policies leading to mutual trade integration.
- We are also working with countries and regional communities to better monitor the impacts of regional integration so that policy makers are better able to assess progress and fine-tune the regional integration reform agenda where necessary.
- Trade facilitation is a strong focus of the World Bank Group’s work: more than half of our trade-related assistance is devoted to trade facilitation. We are also supporting efforts to proceed with implementation of the Trade Facilitation Agreement made at Bali last year. Simplifying customs procedures, improving their speed and efficiency, and lowering trade costs are reforms that are vital to efforts of developing countries to integrate more closely in global and regional markets. In addition, this year we launched a Trade Facilitation Support Program (TFSP) - a five- year, $36 million technical assistance package dedicated to supporting developing countries’ efforts to reform their trade facilitation practices.
- Physical infrastructure investments? Working together with our clients we are designing our operations to target investments in trade-related infrastructure at the poorest and to ensure that these are accompanied by the necessary policy and procedural reforms that will allow trade to flourish along this new infrastructure. For example, the Great Lakes Trade Facilitation Project is constructing essential infrastructure at borders between the DRC and Rwanda and Uganda, with a specific focus on the needs of small-scale traders, while simplifying procedures and improving management of the agencies operating at these borders.
I need to be clear that these investments are not just about boosting intra-African trade – they are providing the basis for integrating the continent into the global economy, and maximizing the gains of participation in the multilateral trading system.
But we also recognize that while trade openness and deeper regional integration are critical, alone they may not be enough. A range of complementary policies helps maximize the gains from trade integration for the poor – including policies related to human and physical capital, access to finance, governance and institutions and macroeconomic stability. To achieve this will require deeper cooperation across sectors, better coordination across government ministries and agencies and that a wider range of stakeholders work effectively together. The World Bank Group is working to support our clients in providing the environment in which trade can drive the elimination of extreme poverty reduction as it has done in other regions.