AFRICAN REGIONAL

ECONOMIC
INTEGRATION

ECON 3510

June

How does REGIONAL ECONOMIC

INTEGRATION Work?

It makes possible productivity

improvements,

i.e. it permits more output to be squeezed

out of given quantities of human, natural
and capital resources.

It thus can contribute to

increasing real incomes in a country,

thereby permitting
improved human development by
individuals and families for themselves, and
by governments through increased taxation
and social expenditures (health, education,
social security, infrastructure etc.)

It can also promote economic

development through
strengthening the tax base of
governments so that
more can be invested in public goods or
other purposes directed more specifically
at economic development.

The economic expansion facilitated by

economic integration may make
possible public investment in
safeguarding the environment.
Does Economic Integration promote
stability and peace among countries?
Evidence and argumentation pro:
Evidence contra:

How does Regional Economic Integration

promote productivity improvements?
1. Permits Implementation of Economies of
Scale and Consequent Resource Saving
(human, natural and capital resources):

Larger plant size

Larger enterprise size
Increased length of production runs
Increased intra-industry specialization
Increased vertical specialization
Increased agglomerative economies.

These are some of the dynamic benefits of

improved rationalization of economic
structure.

2. Static Benefits: gains from

comparative advantage from trade
creation
3. Impacts of Increased Competition within
the Integration Area:
Stimulates domestic product quality
improvement;
Stimulates improvements in product quality and
reductions in production costs.

4. Expanded Market Size can Promote

Increased (and more efficient)
Investment.

5. Strengthened Ability for the Region

to develop successful clusters of
economic activities and thus to
integrate and compete in the
international economy

6. Strengthened Ability for the Region to

Face External Competition for its own

domestic markets.

7. Reversing the historic fragmentation

of the continent into 53 countries,
with the economic disadvantages that
this generates
These gains can be greatest for small country partners

POTENTIAL DISADVANTAGES OF
REGIONAL
INTEGRATION
1. Costs of Transition to Larger Markets:
Some industries or types of economic activity
may not be able to compete with imports.
The result is then labour displacement,
economic dislocation, and unemployment.

Are these costs of economic integration

borne by the workers and enterprises
themselves, or does society share in their
burden?

enterprise and industry restructuring

costs;

2. Possible Longer Term Negative Impacts:

agglomerative dis-economies for some
regions or countries
consequent loss of economic activity and
employment; (e.g. the Maritime provinces in
Canada?)

3. Trade diversion may harm some

partners
4. Possible cultural impacts (probably most
serious for small country-partners)

5. . Possible environmental impacts:

resource stripping for export markets?

Forces behind the attempts to

form larger economic
communities:
Economic theory and argumentation
Problems with ISI;
Other regional integration
experiences,
esp. the European Common Market, but
Also the USA and Asian and L. American
Demonstration effects

Political arguments:

peace and stability and

regional bargaining power

Types of Integration Scheme

1. Specific Functional Cooperation
Agreement to cooperate for specific purposes
(watershed management; transport, energy.)

2. Free Trade Area (FTA);

Lowering and elimination of trade barriers between two
or more countries; separate tariff structures for the
rest of the world

2. Customs Union (CU)

CU = FTA + Common External Tariff

3. Common Market (CM):

Common Market = CU + Factor Mobility (capital & labour)

4. Economic and Monetary Union (EMU):

EMU = CM + Single Currency (monetary &Exchange rate policy)

5. Political Union (PU)

Political Union = EMU + Common foreign and security
policy

Obstacles to Successful
Integration

Achieving effective economic

integration is complex and politically
difficult. Why?
1. Vested interests of enterprise may
object due to fear of competition
from neighbours
2. Political or philosophical differences
among neighbouring countries
e.g. East African Community with Idi Amin,
Nyrere and Kenyatta

3. Trade Diversion may damage some

partners and induce them to leave
4. Distributional Issues: fear that some
countries gain disproportionately while
others lose
5. Weaknesses in the supranational
institutions
6. Infrastructural weaknesses prevent
meaningful economic interaction

Africas Experience with Economic

Integration
1. Early ambitious Pan-Africanists
and modest gradualists;
2. Moderates unwilling to sacrifice
national independence so soon
after achieving it.
3. A gradualist approach for some
time, but with high aspirations
4. Major difficulties have hindered
progress

African Economic
Integration Schemes

1. Southern African Development Community

(SADC)
2. East African Community (EAC)
3. Economic Community of West African States
(ECOWAS)
4. Economic Community of Central African States
(ECCAS)
5. Common Market for Eastern and Southern
Africa (COMESA)
6. Arab Maghreb Union (UMA)
7. Southern Africa's Common Monetary Area (CMA)
8. African Economic Community, (AEC)

Sub-Saharan Exports by
Destination
Destination

1993 and 2004

1993

2003

10.1%

12.8 %

Canada

0.5

0.5

United States

8.9

6,8

Euripean Union

46.0

41.0

Rest of the World

34.5

38.9

$ 51.6
Billion

$ 110.2
Billion

Sub-Saharan Africa

Total Exports, $
Billion

Source: World Bank, African Development Indicators, 2005

African Intra-Bloc Exports

as a Per Cent of Total Exports

Integrati 1970 1980

on
Scheme
6.1
COMESA 9.1
16.9
8.9
EAC
2.2
1.4
ECCAS
10.1
ECOWAS 2.9
1.4
0.3
SADC
Source: Text, p. 490

1990 2000

6.6

6.0

13.3

17.6

1.4

1.0

7.8

10.8

2.8

12.2

Some African Integration

Schemes
1.
Southern African Development Community (SADC)
o Originally SADCC; Founded 1980;
o Defensive economic organization vs.
apartied S. Africa
o Re-founded in 1992 with S. African
presence
o Objective: a full common market
o 200 million people; GDP +/- 200 million
o Dominated by S. Africa
o Successful expansion of intra-regional
trade

Southern African
Development Community

2. East African Community

o Long pedigree starting in the 1967
Dissolved in 1977
Re-founded in 1994

o Early Progress was limited due to

Problems among Prime Ministers and
political differences
Idi Amin
Perceptions that Kenya was gaining most

o Significant success recently:

Rapid expansion of intra-bloc trade

East African Community

3. Economic Community of West

African States (ECOWAS )
o Founded in 1975
o member states; 236 million people; +/GDP of $70 billion in 2000
o Promotes functional cooperation in
transport, ITC, industry, agriculture,
energy and monetary policy
o Nigerian dominance
o Fund for Cooperation Development and
Compensation to support the losers in the
integration process
o Substantial expansion of trade flows

4. Economic Community of Central

African States
Founded 1983
Objective: full common
market
Disparate levels of countries
Little improvement in trade
volumes
Due in part to crises in
member countries

Economic Community of
Central African States

5. Common Market for

Eastern and Southern Africa

7. Southern Africa's Common

Monetary Area (CMA)
Lesotho, Namibia, South
Africa, and Swaziland
launched in 1986
,substantial trade expansion
and economic integration
evidence that it has
facilitated the development of
a regional market
A relationship of unequals,
now as before majority rule

8. African Economic
Community
(The Community of Common Markets)
Founded in 1991;
The Sub-Saharan Integration Scheme, including all
others except Mahgreb
Ambitious objectives:

Promote ec., soc., &cultural development and integration

Establish a framework for the mobilization af all resources
Promote cooperation in al fields of human endeavour
Harmonize policies of all existing and future economic
communities

Fund for community solidarity and compensation

Envisages rather complete union ultimately.
Common currency; common Central Bank, Pan-African parliament

African Economic
Community,
including

Conclusion:
Numerous attempted integration
schemes;
Mixed results
Some schemes excessively
ambitious, falter in implementation
Difficulties in establishing effective
integration movements are immense
Success re integration is vital for
Africas future