REGIONAL INTEGRATION:

1

• REGIONAL INTEGRATION
• CONCEPTS, ADVANTAGES, DISADVANTAGES
• AND LESSONS OF EXPERIENCE
• Lolette Kritzinger-van NiekerkSenior Economist
• World Bank SA Country Office
• Central Bank of MozambiqueMay 2005, Maputo,
  Mozambique

2
OUTLINE

• Why Regional Integration?
• What is Regional Integration
• Pre-conditions and Principles for Regional
  Integration

3
Why integration in Sub-Saharan Africa?

• Africa is the most fragmented continent
• 47 small economies in SSA Belgian economy or
  50 of Spai
• Integration helps overcome fragmentation
• Create larger markets to permit economies of
  scale, wider competition and increased foreign
  investment
• Accelerate opening of economies to the rest of
  the world
• Enhance credibility of national reform through
  lock-in policy mechanisms
• Strengthen unity for international negotiations
• Reduce/resolve inter-state conflicts

4
Why integration in Sub-Saharan Africa?

• Traditional gains from RIAs
• trade gains
• Increased returns and competition
• Increased Investment
• Non-traditional gains from RIAs
• Lock in to domestic reforms
• Signaling
• Insurance
• Coordination and bargaining power
• Security

5
Regional Integration Tradean effective means
for accelerating trade reform in Africa?

• Empirical evidence suggests
• UTL is superior to trade blocs
• N-S RIAs are likely to be superior to S-S RIAs
• Thus guiding principle
• Gains from S-S RTAs may be gt
• with deeper RTAs (it ? extent of trade diversion)
  
• with ? openness with rest of the world (generates
  usual gains from trade

6
Regional Integration and Tradean effective means
for accelerating trade reform in Africa?

• Most African countries are members of regional
  trade blocs (FTAs or CUs) with a set of
  intra-regional and external trade policies (new
  trend for open regionalism based on open and free
  market)
• ?
• Serious implementation of RIAs rules by
  individual countries would ? lower, not higher
  trade barriers (zero intraregional tariff, and
  lower average external tariff)
• Example
• UEMOA average nominal tariff went down from
  25 (pre-1996) to 12 (2000). Intra-regional
  trade went up from 10 (pre-1996) to to 14
  (2000).
• Tariffs remain high for countries that did not
  implement reforms seriously (CEMAC, Nigeria).

7
Regional Integration and larger marketsan
effective means for positive scale and
competition effects?

• Empirical evidence suggests
• Diversification towards manufacturing requires
  scale, low transaction costs, investment
  friendly and noticeable economic space.
  Implied growth in manufacturing will go a long
  way to spur trade regional as well as global
  attract FDI and promote regional investment
• However, positive scale competition effects
  through UTL gt through RIAs, but then often easier
  to do regionally from a political viewpoint
  less competition, plus reciprocal
• Guiding principle are
• Deeper regional integration can help by
  enlarging and opening up the economic space,
  driving down production and transaction costs.
• Broader substantive coverage than strictly
  market integration may be required to address
  supply-side constraints

8
Pluses and Minuses of Regional Integration
9
What is regional integration ?

• Integration understood to have three dimensions

10
GEOGRAPHIC SCOPE RIAs in AFRICA
CEMAC
Nile Basin Initiative
AMU
ECCAS
COMESA
AlgeriaLibyaMoroccoTunisia
IGAD
São Tomé Príncipe
Mauritania
Somalia
ECOWAS
CameroonCentral African Rep.GabonEquat.
GuineaRep. Congo
Djibouti
Conseil de lEntente
Chad
Cape VerdeGambia
Egypt
GhanaNigeria
Burundi Rwanda
EthiopiaEritreaSudan
Benin TogoCôte dIvoire
NigerBurkina Faso
DR Congo
MaliSenegal
Guinea-Bissau
Kenya Uganda
Angola

EAC
LiberiaSierra Leone
Guinea
WAEMU
Tanzania1
Mano River Union
CILSS
ACRONYMS AMU Arab Maghreb Union CBI Cross
Border Initiative CEMAC Economic and Monetary
Community of Central Africa CILSS Permanent
Interstate Committee on Drought Control in the
Sahel COMESA Common Market for Eastern and
Southern Africa EAC East African
Community ECCAS Economic Community of Central
African States ECOWAS Economic Community of
Western African States IGAD Inter-Governmental
Authority for Development IOC Indian Ocean
Commission SACU Southern African Customs
Union SADC Southern African Development
Community WAEMU West African Economic and
Monetary Union
Malawi Zambia Zimbabwe
SACU
Mauritius Seychelles
Comoros Madagascar
South AfricaBotswanaLesotho
Namibia Swaziland
SADC
Reunion
Mozambique
1/ Tanzania is also a member of the Nile Basin
Initiative
IOC
CBI
11
Substantive Coverage

• Problems whose solutions lie in a regional
  approach and less at problems that are common to
  all the concerned countries. Three main
  categories of regional issues
• Regional commons
• which have no real national borders, such as
  certain infectious diseases (e.g. malaria) or air
  pollution.
• Public goods with trans-boundary implications
• e.g. cooperation in the management of shared
  natural resources (e.g. watersheds and
  international rivers), or regional safety and
  security, requiring participation of all
  countries to increase likelihood of success of
  any approach. Imbalance between individual
  country costs and benefits may hamper progress on
  cooperation
• Sectors which are best tackled through a regional
  integration approach also due to fragmentation
• e.g. convergence of macroeconomic policies
  harmonizing legal and regulatory frameworks and
  improving scale and competition through the
  integration of infrastructure and markets for
  goods, finance, labor, and energy. Cooperation of
  all the countries greatly enhances the
  effectiveness of the sector.
• But still differences in range depth of
  sector/issue coverage among RIAs

12
Depth of Integration

• Cooperation
• Harmonisation
• Integration

13
Pre-conditions for successful Regional Integration

• Political
• Domestic peace/security in countries
• Political and civic commitment and mutual trust
  among countries
• Economic
• Stabilize Minimum threshold of macro-economic
  and financial management in countries (price
  stability, realistic real exchange rates, etc.)
• Sufficiently broad national reforms to open
  markets

14
Key Principles for Successful Regional Integration

• Openness National and regional markets too
  small openness to the rest of the world
  essential
• Subsidiarity Regional organizations should do
  only what national governments cannot do as well
• Private sector leadership Integration must be
  for the people private sector is the engine of
  integration
• Pragmatism Variable geometry (countries join
  when ready and appropriate) variable speed (not
  all issues simultaneously) variable depth
  (degree of supranationality)