TRADE AND POVERTY

PAPER SERIES No. 1

Transformative Regionalism, Trade and
the Challenge of Poverty Reduction in Africa

May 2015
 Transformative Regionalism, Trade and the Challenge
of Poverty Reduction in Africa

Patrick N. Osakwe*
Head, Trade and Poverty Branch
ALDC/UNCTAD

Abstract

Regionalism has played a vital role in fostering peace and security in Africa over
the past few decades. However, fully exploiting its potential for economic development
remains a challenge as evidenced, for example, by the prevalence of weak production
and export structures in African countries, the increase in the number of poor people
on the continent, and the low shares of regional trade in Africa's total trade. This paper
argues that regionalism can be made to work for Africa but that it would require a shift
in emphasis from the current trade reform-centered integration approach to an
approach based on Transformative Regionalism. Against this backdrop, the paper
provides a framework for Transformative Regionalism, examines how it differs from the
integration frameworks and strategies of African regional economic communities, and
then discusses how to foster it in Africa.

*
Some of the issues discussed in the paper were presented by the author at the plenary session of the African
Economic Conference held in Johannesburg, South Africa, 28-30 October 2013, and at the Colloquium on "Africa's
Economic Integration: Internal Challenges and External Threats" organised by the Third World Network Africa in Accra,
Ghana, 6-8 May 2014. This paper is forthcoming in the African Development Perspectives Yearbook, Vol. 18, 2015,
published by the University of Bremen, Germany. I thank the referees of the yearbook for comments on an earlier
version of the paper.

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 Note

The aim of the Trade and Poverty Paper Series is to disseminate the findings of
research work on the inter-linkages between trade and poverty and to identify policy
options at the national and international levels on the use of trade as a more effective tool
for poverty eradication.
The opinions expressed in papers under the series are those of the authors and are
not to be taken as the official views of the UNCTAD Secretariat or its member states. The
designations and terminology employed are also those of the authors.
Papers under the trade and poverty paper series are available on the UNCTAD
website at http://www.unctad.org. Contribution of papers to the series should be sent to
[email protected]
This document has not been formally edited.

UNCTAD/WEB/ALDC/2015/1

iii
 Contents

1. Introduction ............................................................................................................................ 1
2. Trade and Transformation in Africa: The Record ................................................................... 2
3. Rethinking Regionalism in Africa ............................................................................................ 4
4. African Regional Trade Blocs and Transformative Regionalism .......................................... 10
5. How can African Countries Promote Transformative Regionalism? .................................... 14
6. Conclusion ............................................................................................................................ 16

Tables

Table 1: Trade and growth across regional groups (1995-2012) ............................................... 2

Table 2: Intra-regional trade shares............................................................................................ 3
Table 3: Structure of production in Africa and developing economies (2005-12) ...................... 3
Table 4: The importance of manufacturing in African regional groups ...................................... 4
Table 5: Poverty incidence across regions................................................................................. 5
Table 6: Regional economic groups in Africa ............................................................................. 6
Table 7: Regionalism in EAC, ECOWAS, and SADC ................................................................ 13

Figures

Figure 1: Framework for Transformative Regionalism ................................................................ 9

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 Acronyms

AEC African Economic Community

AfDB African Development Bank
AIDA Accelerated Industrial Development of Africa
AMU Arab Maghreb Union
AU African Union
CEMAC Central African Economic and Monetary Community
CEN-SAD Community of Sahel-Saharan States
CEPGL Economic Community of Great Lakes Countries
COMESA Common Market for Eastern and Southern Africa
EAC East African Community
ECCAS Economic Community of Central African States
ECOWAS Economic Community of West African States
EU European Union
GDP Gross Domestic Product
ICA Infrastructure Consortium for Africa
IDDA Industrial Development Decade for Africa
IGAD Inter-Governmental Authority on Development
IOC Indian Ocean Commission
MRU Mano River Union
PIDA Programme for Infrastructure Development in Africa
RECs Regional Economic Communities
RISDP Regional Indicative Strategic Development Plan
SACU Southern African Customs Union
SADC Southern African Development Community
SADCC Southern African Development Coordination Conference
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
UNECA United Nations Economic Commission for Africa
UNIDO United Nations Industrial Development Organization
WAEMU West African Economic and Monetary Union

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 1. Introduction

Fostering development through regional integration has been a major objective of African
governments since most countries on the continent became independent in the 1960s. Regional
integration can promote peace and security, contribute to infrastructure development, foster trade
and investment, reduce vulnerability to global shocks, and enhance the quality of economic policy-
making through serving as an external restraint on domestic policies. In the first two decades of the
post-independence era, the focus of regional integration in Africa was, understandably, more on
political cooperation rather than economic integration, as African leaders strived to rid the continent
of the vestiges of colonialism. Since the 1980s efforts have been made to shift the focus of regional
integration from political cooperation to economic integration as evidenced by the emphasis on
economic issues in the 1980 Lagos Plan of Action and the Abuja Treaty signed in 1991.

African governments have made significant progress in using regional integration to promote
peace and security. Military intervention and mediation by the Economic Community of West African
States (ECOWAS) played a pivotal role in ending the civil wars in Liberia, Sierra Leone and Côte
d'Ivoire. ECOWAS diplomacy also played an important role in de-escalating conflicts in Togo, Guinea
and Guinea-Bissau (Omeje, 2013: 8). Despite the progress that has been made on peace and
security issues, there is the recognition that not much has been achieved in terms of diversifying the
structure of African economies, boosting intra-African trade and investment, building supply
capacities, and achieving sustained poverty reduction. African leaders are aware of this reality and
are increasingly taking bold actions to promote economic integration. For example, in January 2012,
they renewed their political commitment to boosting intra-African trade and also decided to fast-track
the establishment of a continental free trade area as envisaged in the Abuja Treaty. In addition, at the
21st Ordinary Session of the Assembly of Heads of State and Government of the African Union held in
Addis Ababa, Ethiopia, from 19-27 May 2013, African leaders rededicated themselves to the
integration agenda and to achieve the African Union's vision of an integrated, prosperous and
peaceful Africa. But this is not the first time that they have renewed efforts to promote regionalism. A
crucial question therefore is what should they do differently to ensure that they use regional
integration effectively in support of economic development?

This paper argues that making regional integration work for Africa requires that African
governments change their approach to economic integration and in particular shift emphasis from the
current model of integration, which focuses mostly on trade reforms and processes and institutions
of integration, to an alternative approach—Transformative Regionalism—in which regional integration
promotes and also ensures progress in building productive capacities and achieving structural
transformation for sustained development. The paper identifies the key elements of Transformative
Regionalism, examines the extent to which the current approach to integration adopted by African
regional economic communities (RECs) are consistent with transformative regionalism, and also
highlights other critical elements of a credible policy package to promote regional integration in
Africa. These include enhancing implementation of existing programmes and action plans, refocusing
the role of the RECs on the goal of economic integration, doing away with false dichotomies that
often cloud the debate on development in Africa, and recognising as well as exploiting the vital role
of industrial policy and consumer behaviour in promoting regional integration.

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 2. Trade and Transformation in Africa: The Record

The main focus of regional integration in Africa so far has been on promoting regional trade and
investments through liberalisation. It derives from the idea that trade has great potential for poverty
reduction and so should be facilitated and promoted. In this section, some facts on the importance of
trade in African economies and the contribution of intra-regional trade to Africa's total trade are
presented. Also included are some facts on the structure of production in Africa with a view to
highlighting one of the key challenges as well as opportunities facing Africa in the integration
process, which is how to diversify the structure of production to promote regional trade.

Trade has and will continue to play a crucial role in African economies. It provides access to
new technology and also foreign exchange needed for the import of goods not produced
domestically. It also allows a country to be more efficient in production through specializing in goods
in which it has comparative advantages. Over the period 1995-1999 the share of trade in Africa's
gross domestic product (GDP) was 43 percent, which is comparable to the average for developing
countries over the same period (table 1). More recently, there has been a significant increase in the
role of trade in African economies and in other developing countries as evidenced by the fact that the
trade-GDP ratio in Africa and in other developing countries was 60.3 percent and 60.9 percent
respectively over the period 2008-2012. Rapid improvements in information and communication
technology, which reduced transactions cost significantly, coupled with trade reforms in Africa and
other developing countries are some factors that contributed to the big increase in trade ratios
observed over the past two decades. In other developing countries, the increase in trade ratios went
hand in hand with an increase in the growth rate of real output while in Africa, there was no
significant change in the growth rate of real output due largely to the negative impact of the recent
political crisis in North Africa and the fact that the financial crisis had a more significant negative
impact on Africa compared to other developing country groups.

Table 1: Trade and growth across regional groups (1995-2012)

Merchandise trade (% of GDP) Real GDP growth rate (%)
1995-1999 2008-2012 1995-1999 2008-2012
Africa 43.4 60.3 3.5 3.3
Other developing economies 49.1 60.9 4.3 5.8
Central African Economic and Monetary Community (CEMAC) 53.0 74.7 4.1 4.5
Common Market for Eastern and Southern Africa (COMESA) 32.9 49.2 3.6 1.3
East African Community (EAC) 30.7 49.0 4.0 5.7
Economic Community of Central African States (ECCAS) 57.8 78.2 3.8 4.5
Economic Community of West African States (ECOWAS) 54.4 62.5 3.7 6.3
Southern African Development Community (SADC) 46.7 65.0 2.8 3.1
Arab Maghreb Union (AMU) 47.6 69.1 3.3 0.5

Source: computed by author based on data from UNCTAD database.

Although the role of trade in African economies has increased significantly in recent years, the
share of intra-regional trade in Africa's total trade has been flat over the past few decades. Table 2
shows that the share of intra-regional exports in Africa's total exports fell marginally from 12.2
percent in the period 1995-1999 to 11.4 percent in the period 2008-2012. Regarding imports, the
share of intra-regional imports in Africa's total imports rose marginally from 12.2 percent to 14
percent over the same period. These numbers are quite low compared to what is observed in other
regions of the world. In Europe, Asia and Latin America for example the average share of intra-
2
regional exports in total exports was 68.9, 51.3 and 20.5 percent respectively in the period 2008-
2012.

Table 2: Intra-regional trade shares

Intra-Regional exports Intra-Regional imports
(% of total exports) (% of total imports)
1995-1999 2008-2012 1995-1999 2008-2012
Developing economies 41.3 54.7 39.5 57.5
Africa 12.2 11.4 12.2 14.0
Other developing economies 40.6 52.7 38.5 54.9
CEMAC 2.0 2.1 4.2 4.4
COMESA 6.1 7.4 4.4 6.3
EAC 17.0 19.4 11.5 8.5
ECCAS 1.3 1.2 2.6 2.8
ECOWAS 10.2 8.0 10.2 10.1
SADC 14.9 11.9 17.2 17.7
AMU 3.0 2.8 3.1 3.2

Source: computed by author based on data from UNCTAD database.

Lack of diversification, particularly the limited role of manufacturing in output, coupled with
weak infrastructure, poor access to finance, and tariff and non-tariff barriers are some of the factors
that have contributed to the weak intra-regional trade performance of Africa. Table 3 presents
information on the structure of production in Africa and developing economies for the period 2005-
2012. It shows that mining and utilities account for a very large share of total value added in Africa. In
the period 2005-2012, the share of mining and utilities in total value added was 23.7 percent in Africa
compared to the developing economies' average of 12.1 percent. It is also interesting to note that
manufacturing plays a significant role in developing economies but not in Africa. The average share
of manufacturing in total value added in Africa is 10 percent compared to about 21 percent for
developing economies. Furthermore, the growth rate of manufacturing value-added was 2.9 percent
in Africa compared to 7.3 percent for developing economies. Agriculture plays a more important role
in output in Africa compared to developing countries. Its share of output was 16 percent in Africa and
9 percent in developing economies. In both groups, the service sector is the most dominant sector
accounting for 45 percent of output in Africa and 52 percent of output in developing economies.

Table 3: Structure of production in Africa and developing economies (2005-2012)

Africa Developing economies
Share of Growth of value Share of sector in Growth of
sector in total added by sector total value added value added
value added by sector
(%) (%) (%)
(%)
Agriculture, hunting, forestry, fishing 16.1 4.8 9.3 3.5
Industry 38.7 1.8 39.2 5.9
Manufacturing 10.1 2.9 20.9 7.3
Mining and utilities 23.7 -0.1 12.1 2.6
Construction 4.9 8.1 6.1 7.2
Services 45.2 5.5 51.5 6.2
Wholesale, retail trade, restaurants and hotels 13.6 6.3 14.3 6.5
Transport, storage and communications 7.5 6.9 7.3 6.7
Other activities 24.1 4.7 29.9 5.9

Source: computed by author based on data from UNCTAD database

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Table 4: The importance of manufacturing in African regional groups
Share of manufacturing in total value added Growth of manufacturing value added
(%) (%)
1990-1995 2005-2012 1990-1995 2005-2012
CEMAC 13.3 7.6 -2.0 3.3
COMESA 12.6 11.4 1.6 3.8
EAC 11.1 9.6 1.8 5.8
ECCAS 10.0 6.5 -6.8 6.6
ECOWAS 9.6 5.0 -2.2 2.9
SADC 19.2 13.2 -0.3 2.4
AMU 12.1 8.4 1.3 1.7
Africa 14.5 10.1 0.3 2.9
Developing economies 17.4 20.9 4.3 7.3

Source: computed by author based on data from UNCTAD database

Among the RECs, the importance of manufacturing in output is also very low but varies across
sub-regions (table 4). For example, in the period 2005-2012, ECOWAS had the lowest share of
manufacturing in output (5 percent) while SADC had the highest (13 percent). However, in terms of
the growth of manufacturing value added, ECCAS had the highest growth rate (6.6 percent) followed
by EAC (5.8 percent). The lowest growth rate was observed in AMU (1.7 percent). A key message
from the facts presented in this section is that the structure of production in Africa is a major factor
inhibiting progress in promoting regional trade in Africa and that addressing the deficit in Africa's
production structure requires fostering manufacturing development.

3. Rethinking Regionalism in Africa

Regional integration is not an end in and of itself. It is only useful to the extent that it enables
African countries to address the development challenges they face, the most serious of which is how
to achieve sustained growth and poverty reduction. Recent research indicates that a necessary
condition for sustained poverty reduction in Africa is the successful transformation of the structure of
African economies. UNCTAD and UNIDO (2011) argues that no country has achieved significant and
sustained poverty reduction without going through a process of structural change involving a shift
from low to high productivity activities both within and across the three main sectors of an economy
namely agriculture, industry and services. Such transformation will have a significant positive impact
on growth as well as income distribution, which are the two main sources of changes in poverty. In
this regard, fostering structural transformation is a major development challenge facing African
policymakers that have to be addressed as a matter of necessity for the continent to achieve
sustained growth, reduce poverty and be a pole of global growth in the 21st century.

The necessity for structural transformation in Africa is evident when one considers the fact that
African countries have grown at a relatively rapid rate over the past decade and yet this growth has
not created enough jobs to absorb the rapidly growing new entrants into the labour force. Recent
growth has also been associated with an increase in the absolute number of poor people even
though the poverty rate declined significantly in the last decade relative to the 1990s. As shown in
table 5, Africa is the only group where there was an increase in the number of poor people between
1999 and 2010 and it is not surprising that it is also the region with very low levels of manufacturing
development.

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 One of the reasons why recent growth in Africa has not had the expected impact on
employment creation and poverty is that it has been driven by low productivity activities and also by
sectors (such as informal services) that have very limited potential for employment creation. Inducing
structural transformation from low to high productivity activities is therefore necessary to create
employment and reduce poverty in Africa. Against this background, one of the main goals of
development policy and regional integration in Africa should be to transform the structure of African
economies to lay the foundation for sustained growth, job creation and poverty reduction. Therefore,
if regional integration is to work for Africa it must be geared directly towards inducing structural
transformation in the continent and this requires the adoption of a more pragmatic and strategic
approach to integration.

Table 5: Poverty incidence across regions

Poverty rate (%) Number of poor (millions)
1999 2010 1999 2010
Sub-Saharan Africa 58 48.5 376.8 413.8
East Asia and the Pacific 35.6 12.5 655.6 250.9
Europe and Central Asia 3.8 0.07 17.8 3.1
Latin America and Caribbean 11.9 5.5 60.1 32.3
Middle East and North Africa 5.0 2.4 13.6 8.0
South Asia 45.1 31.0 619.5 506.8
Total 34.1 20.6 1743.4 1214.9

Source: UNECA, AfDB and UNDP (2013).

Trade reform-centered regionalism

The framework guiding regionalism in Africa has been the linear model of integration found in
international trade textbooks, which involves a progressive move from a free trade area to a customs
union, common market, monetary union and political union. It is based on the premise that trade
reforms will have a positive impact on trade and growth and that the benefits will eventually "trickle
down" to poor segments of society thereby reducing poverty. The formation of trade blocs and the
elimination of trade barriers have been the principal mechanism or instrument through which regional
economic integration has been promoted in Africa over the past decades. The Abuja Treaty
envisaged the division of the continent into five regional trade blocs (East, West, Central, South and
North Africa) to serve as pillars of the proposed African Economic Community (AEC). Since then there
has been a mushrooming of regional trade groups within the continent and, as shown in table 6,
Africa currently has 14 regional trade blocs which cannot be easily mapped into the five trade blocs
proposed in the Abuja Treaty. The African Union recognises only eight out of the fourteen regional
groups. These are AMU, COMESA, CEN-SAD, EAC, ECCAS, ECOWAS, IGAD, and SADC.

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Table 6: Regional economic groups in Africa
Year
Members Status of integration
established
1 Arab Maghreb Union Algeria, Libya, Mauritania, Morocco and Tunisia 1989 Draft agreement on
(AMU) establishing a free trade
area signed in 2010
2 Central African Cameroon, Central African Republic, Chad, Equatorial 1994 Customs and monetary
Economic and Guinea, Gabon, and Congo union
Monetary Community
(CEMAC)
3 Common Market for Burundi, Comoros, Democratic Republic of the Congo, 1994 Launched customs union
Eastern and Southern Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, in 2009
Africa (COMESA) Madagascar, Malawi, Mauritius, Rwanda, Seychelles,
Sudan, Swaziland, Uganda, Zambia and Zimbabwe.
4 Community of Sahel- Benin, Burkina Faso, Central African Republic, Chad, Côte 1998 No clear timeframe or
Saharan States (CEN- d'Ivoire, Djibouti, Egypt, Eritrea, Gambia, Ghana, Guinea plan to move towards a
SAD) Bissau, Liberia, Libya, Mali, Morocco, Niger, Nigeria, free trade area
Senegal, Sierra Leone, Somalia, Sudan, Togo, and Tunisia.
5 East African Burundi, Kenya, Rwanda, United Republic of Tanzania, and 2000 Launched common
Community (EAC) Uganda market in 2010
6 Economic Community Angola, Burundi, Cameroon, Congo, Democratic Republic 1983 Launched Free trade area
of Central African of Congo, Gabon, Equatorial Guinea, Chad, and Sao Tome in 2004
States (ECCAS) and Principe.
7 Economic Community Burundi, Congo and Rwanda 1976 No clear timeframe or
of Great Lakes plan to move towards a
Countries (CEPGL) free trade area
8 Economic Community Benin, Burkina Faso, Côte d'Ivoire, Gambia, Ghana, 1975 Achieved free trade area
of West African States Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, status in 2000. Members
(ECOWAS) Senegal, Sierra Leone, Togo and Cape Verde agreed to implement a
common external tariff in
January 2015.
9 Indian Ocean Comoros, Madagascar, Mauritius, Réunion, and Seychelles 1984 No clear timeframe or
Commission (IOC) plan to move towards a
free trade area
10 Inter-Governmental Djibouti, Ethiopia, Eritrea, Kenya, Somalia, South Sudan, 1996 No clear timeframe or
Authority on Sudan, and Uganda plan to move towards a
Development (IGAD) free trade area
11 Mano River Union Côte d'Ivoire, Guinea, Liberia, Sierra Leone 1973 No clear timeframe or
(MRU) plan to move towards a
free trade area
12 Southern African Botswana, Lesotho, Namibia, South Africa and Swaziland 1910 Customs union and
Customs Union common monetary area
(SACU)
13 Southern African Angola, Botswana, Congo, Lesotho, Madagascar, Malawi, 1992 Free trade area achieved
Development Mauritius, Mozambique, Namibia, Seychelles, South Africa, in 2008
Community (SADC) Swaziland, United Republic of Tanzania, Zambia and
Zimbabwe
14 West African Economic Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, 1994 Monetary union
and Monetary Union Niger, Senegal, and Togo
(WAEMU)

Source: computed by author based on information from the websites of African regional organisations.

There are several limitations of the linear model of integration (or trade reform-centered
regionalism) that has been pursued in Africa so far. First, it has not worked for the continent as
evidenced by Africa's weak regional trade performance and poverty statistics compared to those of
other developing country groups. Second, it associates trade mostly with trade liberalisation as if it is
the most important aspect of trade and development policy. Third, it assumes that trade barriers
represent the main obstacle to the inability of African countries to foster regional trade and effectively
exploit the potential of trade for poverty reduction. UNCTAD (2013) suggests that infrastructure
bottlenecks, particularly those related to energy and transport, are more binding constraints to
boosting regional trade in Africa than tariff and non-tariff barriers. The experience of the Southern
African Customs Union (SACU) is a very good illustration of the fact that the elimination of trade
barriers is not the most binding constraint to boosting regional trade in Africa. SACU is the oldest
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customs union in Africa. Yet, the share of intra-SACU exports in SACU's total exports was only 7.5
percent in 1995-1999 and 5.8 percent in 2008-2012.

Another limitation of the trade reform-centered regionalism is that it assumes the relationship
between trade and poverty is one-directional. In particular, there is the presumption that causality
runs from trade to poverty reduction. This ignores the equally important fact that poverty limits the
ability of poor countries to produce and trade. In other words, being poor affects a country's ability to
produce and trade and so structural issues have to be addressed. A more realistic approach is to
recognise the effect of poverty on Africa's ability to trade by making the development of productive
capacities a key issue in the trade-poverty discussion. Such a holistic approach recognises the fact
that the relationship is bi-directional and so the focus of policy should be on how to exploit linkages
between both variables rather than focusing on one aspect of the trade-poverty nexus. Admittedly,
over the past decade African governments have acknowledged the need to pay more attention to the
development of productive capacities in promoting regional integration. For example, Agenda 2063
of the African Union underscores the important role of building supply capacities and transformation
for inclusive growth and sustainable development in Africa (African Union Commission, 2014: pp. 1-
100). Nevertheless, it is still the case that productive capacity development issues have not received
as much attention as trade and factor market liberalization in the discourse on integration on the
continent.1

Understandably, the form of economic integration that has been promoted in Africa follows
closely the European model of integration which places emphasis on trade reforms. While this
approach made sense in Europe given the high productive capacities and level of infrastructure
development of the continent, it is not the appropriate approach to integration in Africa given the
weak productive capacities and infrastructure deficits of African economies. Furthermore, as
indicated earlier infrastructural bottlenecks, particularly those related to energy and transport,
represent more obstacles to intra-African trade than trade barriers indicating that more attention
should be paid by African governments to lifting these infrastructure constraints to trade. Another
reason why the European model of integration may not be appropriate for Africa is that the
institutions and structural foundations of the European Union (EU) make it possible to align its
strategies with the national strategies of its member states (Patterson, 2012: p. 15). For example, the
EU has well-developed institutions, has the capacity to enforce its decisions, and does not have sub-
regional groupings (or RECs). By contrast, the African Union (AU) lacks capacity, relies on the RECs
as pillars of integration, and there is often very weak links between these regional organisations and
national governments. In summary, the EU experience provides useful lessons for Africa, for example
it underscores the importance of fair sharing of the benefits of integration and of having quality
infrastructure and capacity to respond to trade opportunities. Nevertheless, it is not the appropriate
model of integration for the continent given its structure and stage of development.

1
The United Nations Economic Commission for Africa, the African Union and the African Development Bank produce an
annual report on regional integration subtitled "Assessing Regional Integration in Africa" (see, for example, UNECA, AU
and AfDB, 2013 and 2012). These reports provide very useful information on the status of integration in Africa. They also
monitor progress by African RECs in achieving targets on trade and factor market liberalization and the achievement of
economic and monetary union as proposed in the Abuja treaty. While these reports highlight the importance of
diversification and building supply capacities, the analysis is conducted within the framework of the linear model of
integration in which countries move from a free trade area to a common market and eventually to economic and
monetary union. In this context, the approach adopted in these reports differs fundamentally from the framework of
Transformative Regionalism discussed in this paper.

7
 Transformative regionalism

As indicated in the previous section, a key development challenge facing Africa today is how to
develop productive capacity and induce structural transformation to create employment and reduce
poverty. Therefore regional integration should be specifically geared toward overcoming this
development challenge and not to promote trade reform per se. To the extent that trade reform
contributes to confronting the challenge it should be promoted but it should not be the focus of
integration. In this context, what Africa needs is Transformative Regionalism rather than the Trade
reform-centered Regionalism that has been adopted on the continent. Transformative regionalism
refers to an integration approach that promotes and also ensures progress in building productive
capacities and achieving structural transformation for sustained development. It differs from the trade
reform-centered approach to integration in the sense that it begins with an identification of the most
binding constraints to development in Africa and asks how integration can contribute to lifting or
relaxing these constraints. In contrast, the trade reform-centered approach to integration assumes
that trade barriers represent the main obstacle to promoting regional trade in Africa and that trade is
the key to poverty reduction. Furthermore, in this framework the emphasis is on boosting the volume
of trade and the implicit assumption is that the structure of production and exports does not matter
as countries produce goods in which they have current comparative advantage. This contrasts with
Transformative Regionalism which takes the lack of development of productive capacities and
structural transformation as the key obstacle to promoting regional trade.

Figure 1 provides a framework to illustrate how Transformative Regionalism can contribute to

achieving the ultimate development objective of African countries, which is to reduce poverty.
Regional cooperation, for example in infrastructure, finance, and peace and security, can foster the
development of supply capacities in an economy. When this is complemented with industrial policy it
can induce structural transformation. Structural transformation coupled with trade reforms enhances
trade, and this has an impact on growth and inequality which are two important sources of changes
in poverty. Through promoting structural transformation, integration can also affect growth and
inequality directly thereby contributing to poverty reduction. In particular, when regional integration
induces structural transformation, resources move from low to high productivity activities thereby
stimulating growth. If the increase in productivity is reflected in higher real wages it also contributes
to a reduction in inequality and hence poverty. It should be noted that in this framework, poverty also
has a direct impact on trade through reducing the capacity to produce and hence trade. Furthermore,
in this framework trade reforms complement policies to build supply capacities and transform
economies and are not the main focus of integration.

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Figure 1: Framework for Transformative Regionalism

Poverty

Growth Trade Inequality

Trade reforms
Productivity
effects from Wage/
reallocating Productivity
resources nexus
Structural
Transformation

Industrial policy

Regional
Cooperation in
- Infrastructure
- Access to finance
- Peace/security

Source: author

9
 For transformative regionalism to work in Africa it has to be strategic, coherent and pragmatic.
It has to be strategic in the sense that it begins with an informed vision, specifies how to get to the
vision, and provides clear indicators on how to monitor progress in achieving the vision. It has to be
pragmatic in the sense that it focuses on what works and sets realistic targets and deadlines. It also
has to be coherent in the sense that national and regional policies are consistent with the overall
objective of integration. Another essential ingredient for success of transformative regionalism in
Africa is that Governments have to lead the integration process but ensure that other stakeholders
are active in the process. The active participation of other stakeholders will ensure that integration is
not simply an intergovernmental affair. A recent study on private sector involvement in African
regional economic integration indicates that although there is some evidence of participation, the
RECs need to strengthen the role of the private sector in the integration process (Palm, 2011: p. 1).
The RECs have established Business Councils but most of them do not have a private sector
strategy and clear procedures for private sector participation. While getting the private sector more
active in the integration process is desirable, it is important that Governments lead the process
because most of the areas where there are challenges in integration (cross-border infrastructure,
peace and security, access to long-term finance, and trade barriers) are areas where the private
sector cannot provide effective leadership and direction in the integration process. In infrastructure
for example, it has been very difficult to get enough private sector investments in energy and
transport which are key obstacles to regional trade and investment (ICA, 2012). Without government
leadership and intervention, these neglected infrastructure areas will not get required investments.

4. African Regional Trade Blocs and Transformative Regionalism

This section examines the extent to which existing frameworks and programmes on economic
integration in African regional trade organisations are consistent with transformative regionalism. It
focuses on three Regional Economic Communities namely ECOWAS, EAC and SADC (table 7). The
three groups are among the eight RECs recognised by the AU and their experiences and challenges
in the integration process are similar to those of other regional groups on the continent.

ECOWAS has 15 members and was established in 1975 to promote economic integration in the
West African region. Over the past two decades, the region has experienced a significant increase in
economic performance with real GDP growth rate increasing from 3.7 percent in 1995-1999 to 6.3
percent in 2008-2012. In addition, ECOWAS has made some progress in facilitating the free
movement of people in West Africa (UNECA, 2012: p. 22). It has also made progress in the area of
political governance as evidenced by the fact that, unlike in the 1970s, all member states today have
democratically elected governments. Furthermore, it has a good track-record in promoting peace
and security as alluded to in the previous sections of the paper. Despite these advances on political
governance and security issues, performance in the area of economic integration has been weak at
best as evidenced, for example, by the declining share of regional trade in the global trade of
ECOWAS over the past two decades (table 2).

In recent years, ECOWAS has increasingly adopted measures that are consistent with some
aspects of Transformative Regionalism. First, promoting economic transformation is now a priority
issue for ECOWAS and several actions have been taken by the sub-region recently to promote
transformation. For example, ECOWAS published the West African Common Industrial Policy in 2010
with a view to diversifying the production structure of economies in the region (ECOWAS, 2010a: pp.
1-68). In particular, the sub-region expects to: (a) increase the local raw material processing rate

10
currently at an average of 15-20 percent to an average of 30 percent by 2030; (b) raise the share of
manufacturing in GDP from 6-7 percent to 20 percent by 2030; (c) increase intra-ECOWAS trade from
12 percent to 40 percent by 2030; and (d) increase the sub-region's share of global exports from 0.1
percent to 1 percent by 2030. Second, relative to the 1970s/1980s ECOWAS now has a more
strategic approach to promoting regional integration with a vision, an action plan to achieve the
vision, and a mechanism for monitoring and evaluation. The broad vision as expressed in ECOWAS
Vision 2020 adopted in June 2007 is "to create a borderless, peaceful, prosperous and cohesive
region, built on good governance and where people have the capacity to access and harness its
enormous resources through the creation of opportunities for sustainable development and
environmental preservation" (ECOWAS, 2010b: p. 2). Third, ECOWAS is strengthening efforts to
develop infrastructure and human resources with a view to enhancing supply capacities for trade and
development. The ECOWAS strategic plan for 2011-2015 accords priority to the development of
energy, transport and information and communications technology infrastructure. Furthermore, the
Programme for Infrastructure Development in Africa (PIDA), developed by African regional
organisations in 2010, has been adopted by African Heads of State and Government in 2012 as the
framework for development of infrastructure on the continent signalling renewed commitment by the
continent to improve infrastructure for development of productive capacities.

These measures indicate that ECOWAS is, in principle, promoting the development of
productive capacities and structural transformation. But they do not mean that its regional integration
approach has been transformative because Transformative Regionalism is not simply about
establishing initiatives to promote productive capacity development and economic transformation. It
also requires implementation of action plans associated with these initiatives and this is one of the
areas where ECOWAS is facing challenges in the integration process. Transformative regionalism
also requires progress in achieving established goals on structural transformation and as shown in
table 4, ECOWAS has not had much success in transforming its production structure from
dependence on traditional agriculture to dependence on manufacturing and/or modern services.
While the growth of manufacturing value added in the sub-region rose from -2.2 in the period 1990-
1995 to 2.9 in the period 2005-2012, the share of manufacturing in GDP fell from 9.6 percent to 5
percent over the same period. Another reason why the current integration approach in ECOWAS is
not transformative is that it relies heavily on the linear model of integration which involves a
progressive move from free trade area status to a custom union, a common market, and monetary
and economic union. Consequently, the current approach has been geared more towards removal of
trade barriers than the development of production capacities and structural transformation.

The EAC is a relatively small regional economic group with five members. It was first
established in 1967 by Kenya, the United Republic of Tanzania and Uganda, and dissolved in 1977
due largely to ideological differences between its members and concerns about the unequal sharing
of the benefits of integration. It was re-established in 2000 with the goal of widening and deepening
economic, political and social cooperation among its members for mutual benefits. Its vision is to
"attain a prosperous, competitive, secure and politically united East Africa" (EAC, 2011: p. 12). The
EAC experienced an increase in growth from 4 percent in 1995-1999 to 5.7 percent in 2008-2012.
Intra-EAC exports as a percentage of total exports also increased from 17 percent to 19 percent over
the same period. It is one of the few RECs that have made significant progress in achieving targets in
the integration process, particularly those on liberalization of trade and factor markets. For example,
it established a customs union in 2005, a common market in 2010, and in November 2013, the
leaders signed a protocol for the establishment of a monetary union. It is also one of the few RECs
with a well-defined and comprehensive strategic framework for deepening and accelerating
11
integration. Since its inception, it has had four development strategies outlining its goals, targets as
well as how to achieve them, and indicators for monitoring performance. To support the integration
process, the EAC fourth development strategy, covering the period 2011-2016, stresses the need to
expand productive capacities to facilitate diversification and to develop infrastructure networks.

The EAC has also developed a long-term industrialisation strategy for the period 2012-2032. It
identifies six strategic sectors that have to be supported to promote industrialisation, namely: iron-
ore and other mineral processing; fertilisers and agrochemicals; pharmaceuticals; petro-chemicals
and gas processing; agro-processing; and energy and biofuels. With regard to the building of
productive capacities, the EAC has also elaborated plans for infrastructure development and
financing. These facts suggest that the EAC seeks to promote the development of productive
capacities and structural transformation. The challenge as with ECOWAS is that these initiatives are
poorly funded and for the most part rarely fully implemented. It is therefore not surprising that
regional integration initiatives have not had a transformative effect in the region. Although there was
an increase in the growth of manufacturing value-added from 1.8 percent in 1990-1995 to 5.8
percent in 2005-2012, the share of manufacturing in output actually fell from 11 percent to 10 percent
over the same period. If the EAC intends to achieve better results on economic transformation
through regional integration, it has to strengthen efforts and devote more resources to
implementation of the industrialisation agenda. So far, the focus as stressed in the EAC fourth
development strategy has been on consolidating the customs union, implementation of the common
market, and establishing a monetary and political union (EAC, 2011: p. 55).

12
Table 7: Regionalism in EAC, ECOWAS, and SADC
EAC ECOWAS SADC
Vision To attain a prosperous, To create a borderless, peaceful, To build a region in which there
competitive, secure and prosperous and cohesive region, build will be a high degree of
politically united East Africa. on good governance and where people harmonization and
have the capacity to access and rationalization, to enable the
harness its enormous resources through pooling of resources to achieve
the creation of opportunities for collective self-reliance in order to
sustainable development and improve the living standards of
environmental preservation. the people of the region.

Framework of Linear model of integration Linear model of integration Linear model of integration
integration
Is integration No, largely due to overlapping No. Overlapping memberships of RECs No, but the ongoing process of
approach coherent? memberships of RECs. But the has made it difficult to have a coherent establishing the Tripartite FTA
ongoing process of establishing approach to integration with COMESA and EAC is
the Tripartite FTA with COMESA setting the stage for a more
and SADC is setting the stage for coherent integration agenda.
a more coherent integration
agenda.
Is industrial policy The EAC has an industrialisation ECOWAS has the West African SADC has an industrial
used as an policy for the period 2012-2032 Common Industrial Policy development policy framework
instrument?
Is productive Yes Yes Yes
capacity
development on the
agenda?
Is there a strategy Yes No No
for private sector
involvement in
integration?
Progress in Slow Very slow Very slow
implementation of
action plans on
integration
Is regionalism No, as evidenced for example by No. For example, the share of No. For example, the share of
transformative? the fact that the share of manufacturing in GDP declined from manufacturing in GDP declined
manufacturing in GDP actually about 10 percent in 1990-1995 to 5 from 19 percent in 1990-1995 to
declined from 11 percent in percent in 2005-2012. 13 percent in 2005-2012.
1990-1995 to 10 percent in 2005-
2012.

Source: author.

SADC is an offshoot of the Southern African Development Coordination Conference (SADCC)

launched in 1980 by nine independent states in Southern Africa primarily to reduce economic
dependence on South Africa. In 1992, SADCC was transformed into SADC with a view to promoting
deeper economic cooperation and integration in the sub-region. It currently has 15 members. Unlike
ECOWAS, its economic growth performance over the past two decades has been weak. It had an
average growth rate of 2.8 percent in the period 1995-1999 and 3.1 percent in the period 2008-2012.
It experienced a decline in the share of intra-regional exports in total exports from 15 percent in
1995-1999 to 12 percent in 2008-2012. As is the case with ECOWAS, promoting peace and security
seem to have been a more dominant activity in SADC over the past decade than promoting
economic integration in the sub-region.

In 2003 SADC adopted the Regional Indicative Strategic Development Plan (RISDP) as the
blueprint for regional integration in the sub-region. It spells out the vision of SADC, its plans on how
to get to the vision and how to assess performance. The key priority areas of SADC in the RISDP for
2005-2010 were: trade, industry, finance and investment; infrastructure and services; food,
agriculture and natural resources; social and human development and special programmes; and
cross-cutting issues. SADC has also unveiled an Industrial Development Policy Framework to guide
13
and facilitate industrial development in the sub-region. Clearly, these initiatives indicate that SADC
has made efforts to promote productive capacity development and structural transformation. It is
also evident that it has not been successful in inducing structural transformation in the sub-region.
For example, the share of manufacturing value added in output fell from 19.2 percent in 1990-1995 to
13.2 percent in 2005-2012. As with ECOWAS and EAC implementation remains a major challenge. A
recent assessment of the RISDP for 2005-2010 concluded that its implementation is behind schedule
because member states did not set aside resources for implementation at the national level (SADC,
2011).

In summary, over the past decade the RECs have all strengthened efforts to promote the
development of supply capacities and structural transformation. But poor, and often lack of,
implementation of action plans has made it difficult to achieve economic transformation in these
RECs. Furthermore, the RECs tend to "put the cart before the horse" in the sense that trade and
factor market liberalization has been the primary focus of integration efforts in these organisations
and this diverts attention and resources away from much deeper issues such as the development of
productive capacities and structural transformation. In addition, the setting of unrealistic targets
coupled with overlapping membership of RECs with different ambitions on integration creates an
incoherent integration agenda and makes it even more challenging to achieve transformative
regionalism.

5. How can African Countries Promote Transformative Regionalism?

African countries have to adopt a more balanced approach to integration that prioritizes the
need for economic transformation and pays as much attention to productive capacity building as
with the elimination of trade barriers. The continent has several initiatives to build productive
capacities and transform economies. These include the First Industrial Development Decade for
Africa (IDDA I) covering the period 1982-1992, the Second Industrial Development Decade for Africa
(IDDA II) covering the period 1993-2002, the Alliance for Africa's Industrialisation launched in 1996,
the African Productive Capacities Initiative (2003/2004), and the Accelerated Industrial Development
of Africa (AIDA) initiative adopted in 2008. There are also industrial development initiatives by RECS
such as SADC, ECOWAS, EAC, and COMESA. A common feature of these initiatives is that they
have so far not been successful in achieving the stated objective of economic transformation due in
part to lack of implementation of the action plans. In this context, there is the need for African
countries to move away from the establishment of initiatives and norm-setting to actual
implementation. The design and use of a credible mechanism to monitor implementation of these
initiatives will go a long way towards ensuring that African governments achieve their transformation
objectives. The EAC has developed a useful scorecard to monitor implementation of its common
market protocol that could be adapted by the African Union to monitor implementation of existing
regional initiatives on productive capacities and industrial development (EAC, 2014: pp. 1-36).

There is a need for African countries to re-examine the role of the RECs in the integration
process. Although most of them were set up primarily to promote economic integration, they are
increasingly playing a more active role on peace and security issues. For example, over the past two
decades conflict prevention, management and resolution have featured prominently in the activities
of ECOWAS and SADC. Admittedly, peace and security is a necessary condition for economic
integration, but it can be dealt with by other regional bodies (such as the African Union) to give the
RECs sufficient space to focus on their main goal of economic integration. The AU developed the

14
African Peace and Security Architecture in 2001 to deal with peace and security issues. It consists of
a Peace and Security Council, a Panel of the Wise, an African Standby Force, a Continental Early
Warning System, and a Peace Fund. It also established a framework for post-conflict reconstruction
and development in 2006. However, the effective implementation of the framework has been mired
by resource constraints and the lack of a clear division of responsibilities between the AU and the
RECs.

Promoting transformative regionalism also calls for rationalization of the RECs in order to have
a more coherent integration agenda in Africa. It would also allow the continent to make more
effective use of scarce financial and human resources in promoting programmes on integration and
make dialogue between the AU and African governments much easier. Furthermore, it would
facilitate alignment of the strategies of the African Union with those of national governments. In this
regard, the recent effort at rationalization by COMESA, EAC and SADC is welcome and should
provide impetus for other RECs to do the same with the ultimate objective of having only one
continental organisation.

African countries also have to adopt a more pragmatic approach to regionalism and industrial
development than in the past. More specifically, they should set realistic targets and deadlines and
also avoid being caught-up in false dichotomies that often cloud the debate on industrial
development. For example, the tendency has been for economists to couch the debate on industrial
development in terms of a choice between the role of the state versus markets, export-oriented
versus import substitution industrialization, agriculture versus industrial development, and resource
versus technology based development strategies. Experience has shown that these choices are not
mutually exclusive and have to be part of a coherent package to foster industrialisation. In addition,
what works in one country at a given epoch may not necessarily work in another and so there is the
need for each country to be pragmatic and use the policy combinations appropriate to its
circumstances and realities.

Industrial policy plays a key role in achieving transformative regionalism. At the national level, it
is necessary to ensure that investment goes to strategic sectors deemed crucial for structural
transformation. It is also useful in unlocking private sector potential in an economy. At the regional
level, industrial policy can also promote coherence across industrial strategies and policies of
member states. But for industrial policy to work in Africa, governments must not only provide support
to entrepreneurs but also challenge them to perform through establishment and enforcement of well-
defined performance benchmarks. There is also the need for industrial policy to be consistent with
other economic policies. For example, the stance of monetary policy must not be such that interest
rates are so high that they deter productive investment. For this to happen, however, central banks
have to balance the goal of maintaining price stability with the need to foster structural transformation
for sustained growth and employment creation. In this regard, it is interesting to note that at a
meeting of African Central Bank Governors held in Abuja in March 2014, they called for a review and
an expansion of their mandate to include support of industrialisation and other development
programmes of governments.

Consumers can also play a crucial role in fostering regional trade and industrialisation in Africa.
In the discourse on regional trade and industrialisation in Africa, the tendency has been to focus on
government policies and the activities of the private sector. But consumer behaviour is also crucial in
achieving goals on regional trade and industrialisation. In particular, the consumption patterns and
tastes of African consumers affect the kinds of goods that can be produced and traded profitably by
15
domestic entrepreneurs. Most countries in Africa have a vibrant beer industry because people tend to
buy beer produced by local breweries. Similarly, the food (particularly restaurant) industry in Africa
thrives in part because there is local demand for the services they provide. It is therefore not
surprising that the beer and food industries are the few industries on the continent that have not been
severely affected by the deindustrialisation that has taken place in Africa over the past two decades.
In this context, if African countries want to develop competitive industries and boost regional trade,
consumers have to learn to appreciate and buy goods produced on the continent to create demand
for such goods.

Success in promoting transformative regionalism also depends on the extent to which African
countries are able to harness existing opportunities for industrial development that are currently not
being exploited, particularly in agribusiness. For example, Nigeria produces 1.5 million tons of
tomatoes each year and 60 percent of it rots due to lack of storage facilities as well as lack of
processing into tomato paste. Yet, it imports $360 million worth of tomato paste per year. Nigeria
also imports $200 million worth of juice each year despite the fact that globally it is the second
largest grower of citrus fruit (African Business, 2013: p.14). Similar examples can be found in other
African countries and they do underscore the need to strengthen efforts to exploit these
opportunities. Clearly, this will require boosting investment, particularly in energy infrastructure, and
also promoting technological innovation, both of which are important drivers of structural
transformation.

History suggests that large economies have been drivers of successful regional integration
efforts in other parts of the world (UNECA 2002: p. 4). In this context, the relatively large economies
on the continent (Algeria, Egypt, Nigeria and South Africa) have an important role to play in making
transformative regionalism work for Africa. They are already active in promoting peace and security.
Nigeria was the driving force behind ECOWAS successful interventions in Liberia and Sierra Leone.
Similarly, South Africa has been the driving force behind peace and mediation efforts by SADC in
Madagascar and Zimbabwe. There is the need for the four large economies to also play a more
active role in the provision of finance and cross-border infrastructure on the continent. They should
also position their economies as growth poles in the continent and promote the development of
regional production networks to catalyse trade and investment for sustained development in Africa.

6. Conclusion

African governments have a unique opportunity to make the 21st century an African century.
The continent has had relatively good economic growth performance over the past decade and there
has been a significant decline in the poverty rate. Nevertheless, there has also been an increase in
the absolute number of poor people on the continent and employment creation remains a major
challenge. Against this background, two issues will play a vital role in determining whether or not the
21st century will be an African century. The first is the extent to which African governments can
maintain peace and security and the second is the extent to which they can transform the production
structure of their economies. Regional integration can contribute to addressing each of these
challenges. It can foster peace and security and also catalyse investment in cross-border
infrastructure which is crucial to enhance firm competitiveness and stimulate manufacturing
development. So far, African countries have made significant progress in promoting peace and
security through regional integration. But they have not effectively exploited its potential for economic

16
development as evidenced, for example, by the existence of weak production and export structures
in African countries and the low shares of regional trade in Africa's total trade.

This paper argues that regionalism can be made to work for Africa but that it would require a
shift in emphasis from the current trade reform-centered integration approach to an approach based
on Transformative Regionalism, in which regional integration promotes and also ensures progress in
building productive capacities and achieving structural transformation for sustained development. In
this context, the paper identified the key elements of Transformative Regionalism, examined the
extent to which the current approach to integration adopted by African regional economic
communities (RECs) are consistent with transformative regionalism, and also highlighted other critical
elements of a credible policy package to promote regional integration in Africa. These include
enhancing implementation of programmes and action plans, refocusing the role of the RECs on the
goal of economic integration, doing away with false dichotomies that often cloud the debate on
development in Africa, and recognising as well as exploiting the vital role of industrial policy and
consumer behaviour in promoting regional integration.

17
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