regional integration as structural transformation Tetteh Hormeku UNECA/TWN-AFRICA COLLOQUIUM ON REGIONAL INTEGRATON Accra, May 6-8, 2014 intro: the challenge of coherence in advancing economic integration • A question of strategy (and related agenda) • With 3 characteristics: – Speaks to the total reality of the challenges of economic development; – lends itself to sequenced and inter-locking operationalisation driven by clear priorities; – enables constituency building and political support intro: proposed elements of strategy • Three interconnected elements – economic integration as a constitutive element of structural economic transformation in Africa (not as framework, result, etc); – structural economic transformation as a necessary condition, a motor, of sustained economic development (not as by-product); – driven by the twin processes of, and interaction, between agrarian transformation and industrialisation [also taking on-board resource extraction] • A strategy and agenda – integration formulated in response to initial conditions/binding constraints, etc deriving from Africa’s primary commodity export dependent economic structure. – various policies –trade, monetary, sequenced and referenced to its unfolding. the challenge of strategy-context Illustration of the Difficulty: Recommendation for urgent action for African Union within next two to three years. (ARIA 2004) • Reconcile the African Union with the African Economic Community Treaty and the New Partnership for Economic Development to clear any lingering confusion, misinterpretation, and misunderstanding about the link -- or lack of it – among these various blue-prints. • Establish the African Parliament to mobilise popular support, spur debate over the African Union, and promote timely democratisation and transparency of the process. • Establish consultative mechanisms to institutionalise involvement of all the strake-holders, including the private sector and civil society, a the early stages. challenge of strategy –context (contd) • Establish the African Court of Justice to play a vanguard role with the African Parliament in promoting good governance, human rights and democratisation of the African Union’s institutions and organs and in building a strong moral and constitutional foundations for it. • Establish the Economic, Social and Cultural Council with relevant technical committees to prepare the groundwork for accelerating regional integration (policy convergence, infrastructure). challenge of strategy-context (contd) • Adopt special concurrent measures to move quickly towards the free movement of people, goods, services and capital as a precursor to accelerating the amalgamation of Africa’s economic and market spaces under the African Union. • Ensure that the key African Union financial institution, the African Investment Bank, complements existing regional financing institutions and meets the financing needs of the African Union, the regional economic communities and related programmes. • Establish the African Central Bank after progress has been made towards monetary unions at the regional and sub-regional levels. Priority should go to strengthening monetary unification enough at the sub regional level to create a continental central bank. challenge of strategy (contd) • Trade and Market Integration • Manufacturing co-operation and role of the private sector • Macro-economic policy convergence, monetary and financial integration • Infrastructure • Cross-cutting issues –peace, health and gender • Global exigencies, especially WTO, and therefore integration in the multilateral system. problems • Which is priority? – It is as though each of them equally important. And in fact they are being pursued simultaneously. • Coherence. – Which rely on prior progress of another? – with economic imperatives. Example of Monetary convergence criteria – monetary convergence criteria (Primary) Criteria UEMOA ECOWAS EURO-ZONE Inflation Rate 3% or less; BCEAO2% 10% or less (2000); 5% or less (2003) 1.5% Total Debt to GDP 70% or less n.a. 60% External Debt payment arrears 0 n.a. Domestic debt payment arrears 0 n.a. Budget Deficit to GDP 0 10% or less Interest Rate Reserves Currency stability 3% 2% n. a. (20% of reserves kept at French treasury 3months or more (2000); 6months of more (2003) Membership of challenge of strategy-explaining the context • Legacy of Contested Paradigms – LPA/AEC – AU/NEPAD – and related paradigms on the gains of gain of integration • Ascendancy of neo-liberalism and free trade paradigm to development since SAP years gains of economic integration • two broad types of argument • within existing patterns of production and trade – Traditional theory: Viner and co – Scale and Competition effects • in defiance of, a restructuring of, existing patterns existing patterns • Viner: Trade Creation and Trade Diversion – Efficient allocation of resources on static assumptions of comparative advantage – Inapplicability • Scale Effects – More dynamic – But in the end they operate within existing patterns scale effects and existing patterns: an elaboration • Examples of UNCTADs 2009 and 2013 – Measure potentials of intra-African trade – Tries to assess the reasons why potential not realised – weak attraction forces v. strong forces of opposition – weak forces: small economic size, income levels and demand – strong opposition forces: high trade costs, etc– infr, energy, – Recommendation: addressing these costs – Comments: • Costs and solutions are same reasons for low development account for low intra-African trade scale effects and existing patterns: an elaboration (contd) • UNCTAD 2013 Stylised facts about the nature of intra-Africa trade – Rising but low level of trade external compared to other regions • primary commodity dominated) – intra-african trade up but low share Africa’s external trade (1996-1011) • (fell 1998-2001 and 2009 due to global crises) – – – – – – share of intra-African trade higher for non-fuel exporters, than for fuel large share of informal trade in intra-African trade significant part of regional trade within borders of RECs importance varies between national economies unexploited opportunities in various trade categories manufacturing share of intra-African trade higher than in external trade but falling (continously) – intra-industry trade is low an inhibits expansion of intra-African trade scale effects and existing patterns: an elaboration (contd) • Comment: Analysis shows large coincidence of the structure of inter-African trade with the overall primary commodity structure. – Coincidence of moments of stress – Opportunities: the SITC domination of chemicals fertilizers compared to others – National Distribution of Intra-African trade: – Nature of African firms and challenges • informality; micro- size; weak inter-firms linkages; Africa then and Now. • 1968 Assessment of potential. Almost same as UNCTAD – Low income – Primary commodity export – Small intra-African trade, which is • nevertheless of major significance for several countries – Mali, BF, Niger • High proportion accounted for by a few countries – imports: Kenya, Algeria, Ghana, Taganyika; export: Kenya, Morocco, I. Coast, Mail, UAR • clustering within four sub regions pattern defying-integration • Early development economists in early post-indece era • Need to look beyond existing patterns of production to what is likely to emerge in the future, when comparative advantage and trade patterns are different • inputs of factors of production, esp. capital and labour are variable, and the character and effectiveness of factors are assumed to be bound up the CHARACTER/ORGANISATION of production. • Actual trade flows and the actual degree of competitiveness or complementarity are regarded as largely irrelevant, since they are not necessarily indicative their potentialities. pattern defying-integration (contd) • Preference for industrialisation • Develop industrial exports and importsubstituting industries • Integration as reinforcing the growth effects of industrialisation, provides the conditions to meet the challenge of industrialisation more effectively and efficiently. • purpose of integration • How to use the various characteristics/features of integration for industrialisation; location, choices, types, etc. • Given the polarisation and concentration effects of industrialisation, how to incorporate issues of distribution and equity in allocation location • How fiscal, trade, monetary policies reflect this. Examples • ECOWAS (as in Treaty of Lagos) consisted of two inter-locking processes: – a number of time-tabled commitments with respect to a tariff standstill, trade liberalisation, fiscal harmonisation, and the introduction of common external tariffs; coupled with – untime-tabled obligations to adopt wider policy measures of ‘positive’ economic integration, including industrial cooperation Note: 1993 revision took the latter away limits of market-based import subs. • import substitution formulated around current consumption patterns • weak backward-forward linkages between agriculture and industry • • • • fertilisers, equipment and app. machinery process agric raw materials, fibres, etc low-priced consumer necessities jobs for labour released from agric raw materials for domestic industry food-stuff for wage-workers expand exports to earn f/e release labour for expanding industry • therefore did not achieve structural transformation but actualy reinforced dualistic economic structure inherited from colonialism Two updates • Re-establish a genuine sectoral connection – Primarily: agrarian transformationindustrialisation • the four elements of Ann.S – Reinforced by a secondary: agrarian transformation-manufacturing-extractive industry • Redefine the location of industry to include intra-industry specialization or production chains/value chains strategy and agenda • Coherence with processes – interventions around and in support of enterprise development – unctad’s corridors, etc... • Policy coherence – Trade – Monetary – Investment – Etc Agenda • Research • Politics: constituency building • Organization. networks and institutions.