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RICA Af in Goods in and Services Edited Paul Brenton by and Gözde Isik Deepening Regional Trade Integration DeepeningTrade Regional DE-FRAGMENTING THE WORLD BANK Public Disclosure Authorized Authorized Disclosure Disclosure Public Public Public Disclosure Authorized Authorized Disclosure Disclosure Public Public Public Disclosure Authorized Authorized Disclosure Disclosure Public Public Public Disclosure Authorized Authorized Disclosure Disclosure Public Public DE-FRAGMENTING AfriCA – Deepening Regional Trade Integration in Goods and Services DE-FRAGMENTING AfRICA Deepening Regional Trade Integration in Goods and Services © 2012 International Bank for Reconstruction and Development/International Development Association or The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. 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Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. Table of Contents De-Fragmenting Africa ____________________________________ i List of Abbreviations _____________________________________ ix Preface _____________________________________________ xiii Foreword ___________________________________________ xv 1. Introduction ________________________________________ 1 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 1 Regional Integration Can Play a Key Role in Export Diversification _ _ _ _ _ _ _ 3 There is Substantial Scope for Trade Across Borders in Africa _ _ _ _ _ _ _ _ 5 Cross-Border Trade in Africa is Limited by Thick Borders _ _ _ _ _ _ _ _ _ _ 7 Removing Non-Tariffs Barriers is Essential to Free-Up Regional Trade in Goods _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 12 Coordinated Regulatory and Trade Reforms are Needed to Integrate Regional Markets in Services. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16 Conclusions _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 20 Part I. Facilitating Cross-border Trade in Goods and Services __________ 23 2. Risky Business ______________________________________ 25 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 25 The Characteristics of Cross-border Traders in the Great Lakes Region _ _ _ _ _ 26 Conditions at the Border _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 28 Steps to Facilitate Cross-border Trade in the Great Lakes Region _ _ _ _ _ _ _ 29 3. Economic Integration in the Lower Congo Region ________________ 33 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 33 Estimating the Effects of Removing the Bottleneck _ _ _ _ _ _ _ _ _ _ _ 34 Barriers to Cross-border Integration _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 36 Policy Recommendations _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 39 4. Enhancing the Recent Growth of Cross-border Trade between South Sudan and Uganda _________________________ 43 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 43 Costs and Constraints at the Border and Behind the Border _ _ _ _ _ _ _ _ _ 46 iv De-Fragmenting Africa Women’s Participation in Informal Border Trade _ _ _ _ _ _ _ _ _ _ _ _ 51 Independent South Sudan and an Agenda for Regional Trade _ _ _ _ _ _ _ _ 52 5. Lowering the Cost of Payments and Money Transfers in UEMOA ______ 55 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 55 The Current Payments Landscape _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 56 The Legal Framework Applicable to Payment Services _ _ _ _ _ _ _ _ _ _ 59 What Factors are Limiting UEMOA Money Transfers? _ _ _ _ _ _ _ _ _ _ 60 Policy Suggestions for the Way Forward _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 61 6. Facilitating Cross-border Mobile Banking in Southern Africa ________ 65 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 65 Understanding the Demand for Mobile Banking in Southern Africa _ _ _ _ _ _ 65 Remittances _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 66 Trade Patterns in Southern Africa—Implications for Cross-border Payments _ _ _ 68 The Financial and Telecommunications Landscape _ _ _ _ _ _ _ _ _ _ _ 68 Policy Recommendations _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 69 7. Why Trade Facilitation Is Important for Africa _________________ 73 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 73 The New Approach to Trade Facilitation _ _ _ _ _ _ _ _ _ _ _ _ _ _ 74 Trade Facilitation Contributes to Africa’s Growth _ _ _ _ _ _ _ _ _ _ _ _ 75 Setting Priorities for Trade Facilitation _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 79 Trade Facilitation is a Multi-sectoral Approach _ _ _ _ _ _ _ _ _ _ _ _ 80 How to Integrate Trade Facilitation across Sectors _ _ _ _ _ _ _ _ _ _ _ 81 Future Opportunities for Africa _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 83 Part II. Removing Non-tariff Barriers to Trade ____________________ 87 8. Deepening Regional Integration to Eliminate the Fragmented Goods Market in Southern Africa __________________________ 89 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 89 Despite Southern African Economies Often Growing Faster than the World Average, Regional Trade Has Remained Relatively Constant _ _ _ _ 90 While Efforts to Reduce Tariffs have Largely Been Met with Success, other Barriers are Critically Hindering Regional Trade _ _ _ _ _ _ _ _ _ 91 What are the Main Types of Barrier That Remain and How Much do They Cost? _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 92 Priorities for Regional Merchandise Trade Reform and Implementing Them _ _ _ 95 9. Addressing Trade Restrictive Non-tariff Measures on Goods Trade in the East African Community _______________________ 99 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 99 Non-tariff Barriers in the EAC _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 100 Policy Recommendations _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 102 10. Non-tariff Barriers and Regional Standards in the EAC Dairy Sector _______________________________________ 105 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 105 The Dairy Industry in East Africa _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 106 Current Efforts to Harmonize Standards in East Africa _ _ _ _ _ _ _ _ _ _ 107 Policy Recommendations _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 109 Table of Contents v 11. The Business Environment in Southern Africa: Issues in Trade and Market Integration ________________________________ 113 Introduction _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 113 Trends in Trade Integration _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 113 Business Environment Reforms and FDI _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 116 Issues in Financial Market Integration _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 117 Policy Recommendations _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 118 Part III.