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Regional co-operation and intra African trade
2005-07-27 08:20:50
By Theo Mushi
It is established that at present there are 30 regional trade arrangements and each country belongs to at least four of them.
These are a part of a deeper regional integration, but a new IMF study reveals that due to small market size, poor transport facilities and high trading costs the ability of African countries to reap potential benefits is impeded.
The study attempts to find out if regional Trade Agreements have helped increase interregional trade.
It is revealed in the study that there seems to have been an increase in inter-regional trade in Africa over the last twenty five years, but it still remains low compared with other requires.
Despite efforts to integrate regionaly, intra African trade has remained stable at 10 percent of total African trade since the 1990s.
It is revealed that, by contrast, in Europe, intra-regional trade is 70 percent of total trade in Europe and 30-60 percent in parts of Asia.
It is revealed in the IMF study that nearly all African countries tend to trade primary products and have very similar export-import structures and this leaves limited scope for trading with one another.
It is revealed that African countries’ imports constitute machinery and transport equipment and African countries cannot meet more than 4 percent of this import demand.
The IMF study reveals that strengthening Africa’s infrastructure would help promote trade but it is questionable if the Regional Trade Agreements are needed to do this.
The IMF study notes that Africa RTDs have multiplicity with overlapping memberships which imposes conflicting obligations on those countries most of which are already hampered by inadequate capacity.
It is revealed that inter-African trade would be increased three times if there was a common currency.
It is also noted that currency unions in central and west Africa have re-enforced the positive effects of the corresponding trade agreements on inter regional trade while mitigating any trade diversion effects.
It is also revealed that for a currency union to have the effect of increasing intra-African trade, it must be complemented with good infrastructure, good macro-economic conditions and proper implementation of regional trade agreements.
Currency unions have a positive effect of increasing trade in the region because of the reduction of transaction costs.
It is noted that RTDs have not had a positive effect on Africa’s share of the world trade volume which has declined from 4 percent in the 1970s to a mere 2 percent of total world trade.
Africa has, in effect, been marginalized in world trade.
RTDs have not increased African competitiveness in world markets.
It is noted that small market size is the key reason.
It is noted that the size of the Sub-Saharan African regional economy is about the size of Australia, and when one excludes South Africa, the size of market of SSA is equal to that of Austria.
The study observes that Africa’s regional trade agreements have been designed to have high external tariff barriers against the rest of the world.
The IMF study notes that high external tariffs restricts expansion of trade.
It is noted also that 90 percent of Africa’s total trade conducted with non-African countries is a very big portion of overall trade and is hampered by high tariffs and other barriers.
It is concluded that if trade is boosted among the members in RTDs, it is at the expense of trade with economies outside the regional trade agreement.
The study observes that inter-regional and extra-regional trade in Africa will increase only if the RTDs pursue broader based non-discriminatory trade liberalization.
It is noted in the study that multilateral and unilateral liberalization is a difficult task that would entail an adjustment cost.
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