AFRICAN UNION

UNION AFRICAINE

UNIO AFRICANA

Regional and Market Integration

16th African Partnership Forum

OECD Headquarters
Paris, France: 21 April 2011

Presenter: H.E. Dr. Maxwell Mkwezalamba

Position: Commissioner for Economic Affairs
Organisation: African Union Commission
(AUC)
Fax: +251 11 551 02 49
Email: MkwezalambaM@africa-union.org
maxmkwezalamba@yahoo.com

OUTLINE

I.

Introduction: The African integration Agenda

II.

Overview on the Status of Regional and Continental Integration

in Africa

III.

Prospects for Advancing Integration in the Continent

IV.

Constraints to Regional and Market Integration in Africa

V.

How Development Partners can Support Integration in Africa

VI.

Conclusion

Background Paper: Regional and Market Integration

I.

INTRODUCTION

y Definition: Economic integration can be defined as a process involving the

elimination of economic frontiers between two or more economies in the

exchange of goods and services (Balassa, 1961; AUC, 2010).

y Deeper integration: Market integration

y Cornerstones of market integration: the Four freedoms
Free Movement of Persons
Free Movement of Goods
Free Movement of Services
Free Movement of Capital
y Economic and social benefits of integration for Africa: boost intra-African

trade, promote sustainable growth and prosperity, address supply side

constraints, diversification of the productive base, widen the economic space,
provide economies of scale for production, improve competitiveness and
economic efficiency, foster technology and knowledge transfer as well as
technological progress, boost investment, pool resources to address public
goods, promote regulatory and legislative reforms and increase the Continents
bargaining power at the international level.

Background Paper: Regional and Market Integration

I.

INTRODUCTION

y History of Africas Integration Endevours

Integration - a key component of Africas development and transformation strategy

to counter the negative effects of its small, balkanized and globally marginalized
economies:
April 1980: Lagos Plan of Action and the Final Act of Lagos;
June 1991: Treaty Establishing the African Economic Community (AEC)
commonly known as the Abuja Treaty;
September 1999: Sirte Declaration;
July 2000: Constitutive Act of the African Union; and
July 2001: New Partnership for Africas Development (NEPAD);
2007: the Accra Declaration of on the creation of a Union; and
2004-2007 and 2009-2012: African Union Commission (AUC) Strategic Plans.

y Current global context of Africas integration:

Rapidly changing economic landscape;
Globalisation;
Formation of numerous regional blocs around the world; and
4

The global financial and economic crises.

Background Paper: Regional and Market Integration

I. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA
Progress vis--vis the Abuja Treaty (Article 6: six stages of integration)
Stages of
the Abuja
Treaty

Stage one:
1994-1999

Stage two:2000- 2007

Stage three: 20082017

RECs

Strengthening
existing RECs
and creation
of new RECs
where they do
not exist

Coordination
and
harmonization
of activities

Gradual
elimination
of tariff and
non tariff
barriers

Free Trade
Area

Customs Continental
Establishment
Union
Customs Union of an African
Common
Market

Monetary and
Economic Union

study in
progress

in progress

Not yet

This stage will be

achieved when
all RECs have
achieved African
Common Market
at which time
there will be a
common
currency, issued
by the African
Central Bank.

Stage four:
2018-2019

IGAD

SADC

CENSAD

in
progress

ECOWAS

2011

COMESA

ECCAS

2011

EAC

2011-

This stage will

be achieved
when all RECs
have achieved
a Customs
Union and
harmonized
their respective
CET, with a
view of creating
one single
Continental
CET.

Not yet

5
Background Paper: Regional and Market Integration

Stage five:
2020-2023

This stage will

be achieved
when all RECs
have achieved
the Continental
Customs
Union as well
as free
movement of
labour and
capital.

Stage six: 20242028

latest 2034

I. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA
Progress vis--vis the Abuja Treaty
Abuja Treaty Stages
Realization of the African

Stage 6

Economic and Monetary

Union

Stage 5

Continental Common
Market

Stage 4

Continental Customs
Union

Economic Community (AEC)

COMESA

Regional Customs Union

EAC

Stage 3

Stage 2

Regional Free Trade

Areas

ECOWAS;
ECCAS;
SADC

Coordination and
harmonization of
activities

IGAD
CEN-SAD

Stage 1

Strengthening existing
RECs
1994

Strengthening
existing RECs

1999

2007

Coordination
and
harmonization
of activities

2010

Regional Free Trade

Areas and Regional
Customs Union

2017

2019

Continental
Customs
Union

Background Paper: Regional and Market Integration

2023

Continental
Common
Market

2028-2034

Economic and
Monetary Union

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Trade
Low Intra-African trade :10-12%, small compared to other regions in
the world
Africa trades little amongst itself
European Union (EU) and the USA: accounting for over 60% of Africas
export market and an important source of its imports
China and India : growing as important export destinations
Structure of African economies
Global Share of African exports: 2.5 %, a net decline from 10% in the
1950s
Global share of FDI inflows: only 2-3%
Share of world GDP: 1%
7

Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure - a precondition for facilitating trade and the movement
of goods and persons and therefore a tool for boosting national and
regional trade

8
Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure - key trade faciliation mechanism
Mixed results on the Continent - Many

railways and roads often lead to marine

ports rather than link countries
Insufficiency and low quality
infrastructure on the one hand, and
expensive services on the other
Road network
Poor coverage (2.3 million km = 20%
paved. 7.6 km per 100 sq is the required
level for socio economic development),
Lack of paved roads,
Poor maintenance
Numerous roadblocks and check points
(impeding the movement of people
and goods)

Regional Distribution of Road Networks

2000-2006

Density 2006
(km/100 sq
km)

186475

61.2

3.5

445018

476558

7.1

6.5

Northern

292790

347451

18.7

Southern

801751

853676

6.5

13.5

Western

409377

434910

6.2

2064603

2299070

11.4

7.6

Length (km)

% Change

Region

2000

2006

Central

115667

Eastern

Total

Share of Africas Paved Road Network by Sub-Region

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Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure - key trade faciliation mechanism
Railway network

Low coverage compared to other regions of the world - 89,000 km network for
an area of about 29.6 million sq. km, representing a density of 2.5 km per 1,000
sq. km. Europe, has 40km per 1,000 sq. km.
14 mainland countries in Africa do not have railway lines or
sections of international lines
Old and technically outdated railway network
Low share of rail freight in intra-African trade.

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Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure - key trade faciliation mechanism
Air transport

Modest global share of air transport

Reliant on only three major hubs (Johannesburg, Nairobi and
Addis Ababa),
Only three major airlines (South African Airways, Kenya Airways and
Ethiopian Airlines)
Opportunities for: employment creation;
improve the competitiveness of goods,
especially high-value, time sensitive cargo
(e.g. horticulture); and opening up of
Landlocked/landlinked countries.

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Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure - key trade faciliation mechanism
Marine ports

Insufficiently utilized
Most poorly developed, small and very few incapable of handling large ships,
Capacity constraints and poor performance (in terms of port dwell time of
vehicles)
Lower than required level of container traffic
Poor exploitation of rivers and lakes as an alternative transport mode

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Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure - key trade faciliation mechanism
Information and Communication Technology (ICT)
Africa has made some significant advances in the ICT sector:
Rapid growth in mobile cellular technology and internet
access
However: Africa still lags behind the rest of the world - particular in
investment-intensive infrastructure, such as main or fixed telephone
lines and fixed broadband.
The Continent has some of the highest costs for internet service in
the world - Average subscription prices can be as high 70 per
cent of per capita income.
Urban rural divide in internet access
Unreliable power, low bandwidth
and limited exchange points
undermine internet usage

13
Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure - key trade faciliation mechanism
Energy sector

Africa has a rich pool of exploitable energy resources to meet

its needs (hydropower, coal, gas, oil, and uranium, both new
and renewable resources)
Yet a number of these resources are unexploited
High cost of petroleum and gas importation from
non-Africa markets as intra-African trade in oil and
gas is limited
Underdeveloped electric power sector means
low-generation capacity, low connection rates, high
tariff rates and poor reliability
20% of Africans have access to electricity
Urban rural divide in electricity access

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Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Infrastructure bottlenecks USD 93 billion needed to plus

the gap
World Bank Africa Infrastructure Country Diagnostic Study
Summary of Main Findings

15

More than half of Africas recent improved growth performance has been to due to infrastructure
developments and it has the potential to contribute even more in the future;
Africas infrastructure networks are characterized by the absence of essential regional links and
stagnant household access. As a result, the Continents infrastructure lags increasingly behind
other developing countries;
Africas infrastructure services are twice as expensive as elsewhere, reflecting both diseconomies
of scale in production and high profit margins caused by lack of competition;
Power is by far Africas largest infrastructure challenge, with 30 countries facing regular power
shortages;
The cost of addressing Africas infrastructure needs is around $93 billion a year, about one-third
of which is for maintenancemore than twice the Commission for Africas (2005) estimate;
The infrastructure challenge varies greatly by country typefragile states face an impossible
burden and resource-rich countries lag despite their wealth;
A large share of Africas infrastructure is domestically financed, with the central government
budget being the main driver of infrastructure investment;
Even if major potential efficiency gains are captured, Africa would still face an infrastructure
funding gap of $31 billion a year, mainly in power; and
Africas institutional, regulatory, and administrative reforms are only halfway along, but they are
already proving their effect on operational efficiency.

Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA
y Key integration sectors: Progress
How is Africa addressing its infrastructure deficit?
Infrastructure development mainstreamed in the treaties of the RECs, and at a

16

Continental level (Lagos Plan of Action (1980), the Abuja Treaty (1991) and the NEPAD
framework document (2001)
June 2009 and January 2010 AU Summits dedicated to the theme of infrastructure
development.
A number of initiatives developed aimed at addressing project preparation difficulties,
financing for project implementation and physical and financial needs:
NEPAD Short-Term Action Plan (STAP)
Infrastructure Consortium for Africa (ICA)
NEPAD Infrastructure Project Preparation facility (IPPF),
African Action Plan (AAP)
Programme for Infrastructure Development in Africa
(PIDA),
Institutional Architecture for Infrastructure Development
in Africa (IADA)
NEPAD Infrastructure Champion Initiative, chaired by the Republic of South Africa
Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Free movement - cornerstone of market integration, with some efforts
by the RECs to promote free movement in their regions.
Free movement of persons

A number of RECs have Protocols on free movement and right of establishment

Agreements on visa relaxation and regional passports e.g. ECOWAS and EAC
Regional motor vehicle insurance schemes (yellow and brown card schemes, e.g. COMESA
and ECOWAS, respectively)
Free movement of capital
Harmonization of business and financial laws by some Communities e.g. COMESA, EAC,
ECOWAS and SADC
A number of successful home-grown telecommunications and banking institutions in Africa
(with a Continental and global reach) facilitating international transactions and intra-African
trade e.g. MTNs, Zain, Standard Bank, Ecobank, UBA
Free movement of goods
Harmonization and simplification of customs procedures, documentation and nomenclature
e.g. COMESA, EAC, ECOWAS and SADC
Installation of one stop border posts (OSBP) at key border crossings e.g. EAC, SADC,
COMESA

17

Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA

y Key integration sectors: Progress

Free movement - cornerstone of market integration, with some efforts
by the RECs to promote free movement in their regions.
Free movement of services

Undertaking measures to facilitate trade in services, including the harmonization

of business laws
Successful market integration in financial services requires the coordination of
essential prudential rules, mutual recognition of a single license as well as home
country control

However, free movement is hampered by:

Poor implementation of legal instruments on free movement
Corruption and harassment at border points
Security concerns between Members States within the same REC
Persistent tariff barriers and NTB barriers

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Background Paper: Regional and Market Integration

II. OVERVIEW ON THE STATUS OF REGIONAL AND CONTINENTAL

INTEGRATION IN AFRICA
y Key integration sectors: Progress
Macro-economic convergence
A perquisite for the creation of the African Economic Community (AEC)
Ancillary components of regional and market integration
and the evolvement of a monetary union
Macroeconomic stability and convergence involves some
of the following stabilization measures and convergence
criteria:

Adjusting exchange rates of Member countries to an equilibrium level

Eventual liberalization of current and capital accounts transactions
Adoption of harmonized exchange rate systems
Harmonized ceiling on central bank lending to government to ensure
Fiscal policy harmonization
Stabilization of inflation and interest rates and levels of employment

RECs some have in place monetary convergence

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frameworks/programmes e.g. ECOWAS, COMESA and EAC

Association of Central Bank Governors (AACB) - established an
African Monetary Cooperation Programme (AMCP) under the rubric of
Article 44 of the 1991 Abuja Treaty in efforts to establish an African Central
Bank (ACB).
Background Paper: Regional and Market Integration

III. PROSPECTS FOR ADVANCING INTEGRATION IN

THE CONTINENT
y Prospects are positive and at regional and continental levels efforts include,

amongst others, the following:

Adoption of the Minimum Integration Programme (MIP) and elaboration and costing of

the MIP Action Plan;

Progress towards establishing the three (3) African financial institutions, which are key
to the establishment of the AEC, they include the African Investment Bank (AIB), the
African Monetary Fund (AMF) and the African Central Bank (ACB);
Elaboration and adoption of the African Charter on Statistics to allow for evidence
based tracking on integration and development in Africa;
Adoption of the Programme for Infrastructure Development in Africa (PIDA), the
Presidential Infrastructure Champion Initiative;
The Comprehensive African Agriculture Development Programme (CAADP);
Investigating alternative sources of financing the AU and its integration activities (away
from a dependence on Member State and development partner contributions;
Finalization of a feasibility study on the establishment of a Pan-African Stock
Exchange;
Working on the establishment of a Continental Integration Fund (CIF);
The Tripartite Arrangement between EAC-COMESA and SADC on the creation of a
single FTA and single market between the three groupings;
Rationalization of the RECs in the Central African region; and
Discussion between ECOWAS and ECCAS on the harmonization of their programmes

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Background Paper: Regional and Market Integration

IV. CONSTRAINTS TO REGIONAL AND MARKET

INTEGRATION IN AFRICA
y Despite measures being applied to deepen Africas integration, the

process continues to face numerous constraints. These include:

Economic - persistence of tariff and non-tariff barriers, lack of adequate physical

infrastructure connecting the Continent and its internal markets, small and often undiversified markets, and an undeveloped and under-invested agricultural sector.
Financial - scarce resources available to finance Africas integration agenda; AU and
RECs dependent on the same Member States and development partners for
resources, which can be fraught with difficulty
Institutional - differing progress amongst the RECs in attaining the integration stages
set out in the Abuja Treaty; overlapping membership of RECs leading to institutional
cacophony; absence in some cases of national coordination mechanisms; nonapplication of some protocols; inability to include integration objectives, plans and
programmes into national development plans; weak institutional architecture; and
sometimes lack of cohesion in the face of development partners; as well as a lack of
legislative powers to ensure decisions are binding and enforce their implementation
Partnerships - the existence of partnerships which could threaten to undermine
Africas integration endeavors (e.g. the Economic Partnership Agreements [EPA] of the
European Union)
Statistics - statistical data collection in the Continent, with often poor, unreliable and
unharmonized data produced at the level of Member States, which make difficult
efforts to adequately track progress on integration and development.

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Background Paper: Regional and Market Integration

VI. CONCLUSION
y The success of Africas integration will be determined by the redoubling of
y
y

y
y
22

efforts by all integration players

This redoubling must be within the spirit of cooperation, mutual learning,
exchange and commitment
Due-diligence must be accorded to:
Development of physical and institutional infrastructure
Peace and security
Prudent economic and financial reforms to improve the business environment
and improve the competitiveness of the Continent
Deepening of intra-African trade
Improving domestic resource mobilization, undertaking alternative and creative
sources of financing
Comprehensively addressing the issue of rationalization and overlapping
membership of the RECs.
Efforts must be complemented by reciprocal market opening by partner
countries and a reduction of hidden protectionist measures
There must also be a corresponding injection of political will and momentum
to agree on a specific timetable for reaching an early, ambitious and balanced
conclusion to the WTO Doha Development Round.
Background Paper: Regional and Market Integration

Merci

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Background Paper: Regional and Market Integration