East Asian Community--Come Again, Japan!

I always get worried when new leaders debut their politics with what some might consider bombastic claims to practicalise regional integration. I use "bombastic" to explain away wild claims that might not be founded on reality. I cannot help but wonder whether every economic community has to be predicated on the model of the EU.

When, during the sidelines of the UN general assembly, Japanese Prime Minister Yukio Hatoyama floated the idea of an East Asian community inspired by the European Union in his first meeting with Chinese President Hu Jintao, I believed it to be a great idea, but it is one that must be accompanied with caution.

Caution because just creating something that is modelled on the EU but divorces itself from the culture of East Asia might go to frustrate the conception thereof. Simply put, East Asia needs to continue doing a kind of cost-benefit analysis of what kind of imperative is best for its region--is it economic? is it fiscal? is it one based on security?

When I wrote about the East Asian Community in 2008, I made reference to the Economic Research Institute for ASEAN and East Asia (ERIA) that is keen to support the conception of any EAC. My personal opinion remains that a hybrid of ASEAN and the EU and others might be a good idea. A simple cut-and-paste job of the EU into Asia might prove to be counter-productive and seriously frustrate any desire at a critical and progressive outlook on regional integration for South-East Asia.

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UNCTAD Revisits Calls to Strengthen Regional Integration

9 July, 2009

By E.K.Bensah II



The UNCTAD 2009 report on Economic Development was launched in Accra in June. It is the latest in a series of yearly UNCTAD reports that provide additional angles on issues affecting Africa and the developing world.

Entitled “Strengthening Regional Economic Integration for Africa’s Development”, it is the second report in the space of two years that focuses exclusively on how developing countries can maximize the benefits of regional economic integration for their policy space.

UNCTAD 2007 Trade & Development vs 2009 Economic Report on Africa

The most recent was the UNCTAD Trade and Development Report, which was published in 2007. Entitled “Regional cooperation for development”, the 240-page report used the report to outline how regional integration could offer national space for developing countries. Apart from defining what “new regionalism” was, the report stressed that trade liberalization is not the end-all and be-all insofar as regionalism is concerned. The tendency has been for economic integration to be perceived as a purely economic enterprise. UNCTAD averred it was more to do with a reconfiguration of policy space, expressed through many important elements, such as the provision of public goods; a tool for regional trade and industrial integration; and strengthened policies on energy and industry to complement already-existing national strategies.

As for the 2009 UNCTAD report, it comprises five chapters dealing with the issues of challenges and opportunities in the context of the experience of regional integration for Africa; expanding intra-african trade for Africa’s growth; intra-African investment; emerging issues in regional trade integration in Africa; and policy recommendations on strengthening regional integration.

The report dedicates Chapter 1 to the “Experience with regional integration in Africa: challenges and opportunities”, offering more than just a theoretical justification for economic integration. The report provides a graphical illustration of the eight AU-mandated sub-regional blocs (ECOWAS/ECCAS/SADC/COMESA/AMU/IGAD/EAC), along with the existing monetary zones (UEMOA; CFA franc zone). The Libya-sponsored CENSAD, which Cape Verde joined recently, is the only one that is missing in the graph. This omission notwithstanding, the report explains that the African Union has classified the multiplicity of regional groupings in Africa into two groups—the regional economic communities (RECs) and other integration blocs.

We are reminded that many African countries have multiple memberships—an issue that was equally broached in the UNCTAD 2007 TDR, and considered to be one of the reasons for such low level of intra-African trade. Of the 53 countries, 27 are members of two regional groupings, with 18 belonging to three, with one country being a member of no less than four groupings. This kind of spaghetti-bowl groupings can only go to accentuate the necessity of regional integration by developing countries as part of their development strategies.

Given that this is the latest report by UNCTAD on the importance of regional integration, it is fair to say that although developing countries have made quite some progress, it continues to be found wanting—and napping—on concrete strategies to make regional economic integration work for them.

Infrastructure for intra-African trade

The most highlighted case is that of infrastructure. The report posits that there is a distinction when it comes to infrastructure—there is what it calls “hard” and “soft” infrastructure. Hard infrastructure is described as “physical infrastructure that is often missing or is of poor quality in many African countries.” These include road and air transport. The report avers that “the quality of the road network on the continent is so poor that many countries even within the same RTA remain effectively isolated from each other.”

Conversely, “soft infrastructure” includes “the policy and regulatory environment, the transparency and predictability of trade and business administration, and the quality of the business environment more generally.” Simply put, policies that impact on development, such as transport policies are some of the examples of “soft” infrastructural issues that affect transport costs. Not to speak of the high transport costs throughout the sub-regions and continent that inhibits the facilitation of intra-African trade.

Truth be told, it is difficult to speak about infrastructure without broaching the issue of intra-African trade. UNCTAD in this report views it as a critical element in facilitating regional economic integration. It admits that although intra-African trade is low in comparison to other regions, “Intra-African trade is important for many African countries taken individually.” This is buttressed by the point that “over three-quarters of intra-African trade take place within regional trading blocs, highlighting their importance.” The third critical point is that this kind of trade occurs around what the report considers “influential” countries. That is to say “trade poles” that could become development poles.

The report summarizes the section on intra-African trade by recommending AU and sub-regional policy-makers to pay greater attention to the landlocked countries on the continent that are “constrained by their own poor infrastructure as well as their neighbours’.” The report expresses hope, however, in multilateral processes, such as the EPA negotiations between countries of regional economic communities and the EU; AGOA processes and the WTO Doha Round of multilateral trade negotiations that are bound to re-configure the future of intra-African trade.

Intra-African investment

UNCTAD identifies in its report the importance of financially integrating the economies of the AU. Citing examples for each region of Africa, it refers to ECOBANK as a trailblazer, describing it as a “prominent West African investor in Africa’s banking sector.” Created by the Economic Community of West African States (ECOWAS) and established in Lome, Togo, in 1985, the company was not licensed to operate as a bank until 1988. Today, through manifold investments, it has followed what the report considers to be “a proactive policy of African expansion." It is represented in 25 countries, including China, and has over 500 branches. ECOBANK’s strategy for geographic expansion is consistent with what UNCTAD calls “a sound financial sector”, which it maintains to be a “pre-requisite for increasing the flows of investment within Africa.”

In addition to ECOBANK, Nigerian banks have also been cited as key to the development of the financial sector in the ECOWAS region. UNCTAD indicates that the banking sector has “become a major player in African finance following a radical consolidation undertaken in 2005.” The centrality of these Nigerian banks in Africa’s financial system (with the biggest banks in Africa comprising 9 out of 20 that were Nigerian in 2008) can only go to complement the increasing financial integration of the economies—not just of West Africa but the continent, brought about by the fact that Nigeria’s banks go beyond the shores of the ECOWAS sub-region.

UNCTAD highlights a three-fold reason why both ECOBANK and Nigerian banks will affect intra-African investment. First, the merging and acquisition of these banks with domestic banks means that they inject capital in the economy. Secondly, new competition made possible by the coming of the new banks, triggers a reduction in the cost of banking. Finally, these banks have created financial networks across Africa, making payment mechanisms between countries easier.

In this respect, the proposal made by President of Cote d’ivoire Laurent Gbagbo along the sidelines of a June ECOWAS summit in Abuja for ECOWAS to establish a Regional Investment Fund that would purposefully be used for infrastructure is not just timely, but goes a long way to help cement the financial integration advocated in this report.

Migration and free movement

The May report by the African Union entitled “Status of Integration in Africa” disclosed that free movement had generally been achieved throughout the eight regional economic communities, but some were more advanced than others. ECOWAS perhaps has the oldest arrangement, which dates back to 1979, with a revised treaty in 2003. It has experienced many challenges throughout the three decades. Despite the presence of ECOWAS passports in only three of the fifteen ECOWAS countries, citizens of the sub-region are able to move freely throughout the region with only their ID cards or passports, and enjoy right of residence for 90 days.

Citizens of the East African Community enjoy a similar arrangement, where all the five members have a passport that is specific to the region, and which enables them single immigration entry/departure card under harmonized procedures of entry/work permits.

As for COMESA, it adopted a protocol on free movement of persons, labour, services, rights of establishment and right of residence in 2001. However, progress has been slow.

All these developments notwithstanding, UNCTAD continues to believe that migration and free movement remain important cornerstones of facilitating regional economic integration. It points to West Africa, where it relates the so-called “Ivorian miracle” of the 1980s, which it describes as attributable to “the inflow of Sahelian labour on cocoa and coffee plantations in the South of Cote D’Ivoire.”

The report points to already-existing initiatives, such as the 2006 African Common Position on Migration and Development, which highlighted, among others, the need “to ensure coordination in the development of common regional policies for the management of migration within the RECs.” In this report, UNCTAD avers that policy-makers have to build on the existing initiatives on facilitating labour mobility and migration management “already laid out in various RECs and other consultative forums in the region.” Those above are certainly ones that the report would like to see consolidated and help inform national development strategies so necessary for developing countries.

Commitment

In the final analysis, it is arguable that UNCTAD’s return to regional integration is not a coincidence. By re-visiting the issue of regional integration, it is reminding both policy-makers and interested constituents that its concern for strategic development policies that will help integrate developing countries into the global economy against the backdrop of a global economic recession is sound.

As it indicates in the report, there is nothing wrong with trade policy, but it should “be part of an overall long-term development strategy which defines a country’s development objectives and the way they should be reached.” Cooperation and collaboration are important elements insofar as regional economic integration is concerned, but it should be done on a holistic basis, which includes regional policies on energy; industry; migration; and infrastructure. Regional integration done without attention to these will only go so far, and end up hindering the progress that the regional economic communities have made.

As the report so aptly concludes: “regional integration is not an end in itself; it should be seen as a stepping stone towards Africa’s attractiveness to investment and export competitiveness.”


ENDs


This article can also be found on the twn-africa site on http://twnafrica.org/index.php?option=com_content&view=article&id=203:unctad-revisits-calls-to-strengthen-regional-integration-&catid=72:unctad-&Itemid=55