Assessing Regional Integration in Africa V Towards an African Continental Free Trade Area
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Assessing Regional Integration in Africa V Towards an African Continental Free Trade Area LO E DE D EVE PME AIN EV D N IC EL N T R O A F F P IC U A P R N E E F D M A U E Q N N T A B T F N O E N M D E S P A P FR LO IC VE AIN DE DE Economic Commission for Africa African Union African Development Bank Ordering information To order copies of Assessing Regional Integration in Africa (ARIA V): Towards an African Continental Free Trade Area by the Economic Commission for Africa, please contact: Publications: Economic Commission for Africa P.O. Box 3001 Addis Ababa, Ethiopia Tel: +251 11 544-9900 Fax: +251 11 551-4416 E-mail: [email protected] Web: www.uneca.org © United Nations Economic Commission for Africa, 2012 Addis Ababa, Ethiopia All rights reserved First printing June 2012 Sales No.: E.12.II.K.1 ISBN-13: 978-92-1-125117-3 e-ISBN-13: 978-92-1-055278-3 Material in this publication may be freely quoted or reprinted. Acknowledgement is requested, together with a copy of the publication. Designed by Phoenix Design Aid A/S, Denmark. ISO 14001/ISO 9000 certified and approved CO2 neutral company – www.phoenixdesignaid.dk. Printed by the UNECA Documents Publishing Unit, Addis Ababa. Cover Photos: Stock.xchng/Herman Brinkman, Darias Martin, Robert Linder, Robert Parzychowski, Ehsan Namavar, Ilker, Antonella Falbo, Matteo Canessa, Abcdz2000, John Nyberg, Petr Vins, UN Photo/Martine Perret, UN Photo/Tim McKulka, Dawit Tesfaye. Contents Acronyms ix Regional Economic Communities Recognized by the African Union xi Acknowledgements xiii Foreword xv Highlights 1 Chapter One: Introduction 11 Chapter Two: Overview of Regional Integration in Africa 13 2.1 Assessing regional integration 14 2.2 Status in selected RECs 14 2.2.1 Community of Sahel-Saharan States (CEN-SAD) 14 2.2.2 Common Market for Eastern and Southern Africa (COMESA) 15 2.2.3 East African Community (EAC) 16 2.2.4 Economic Community of Central African States (ECCAS) 17 2.2.5 Economic Community of West African States (ECOWAS) 17 2.2.6 Inter-Governmental Authority on Development (IGAD) 18 2.2.7 Southern African Development Community (SADC) 18 2.3 Direction of trade among the RECs 19 2.3.1 Exports 19 2.3.2 Imports 20 2.4 Challenges for regional integration 20 2.5 Initiatives to overcome some of the challenges 21 2.5.1 Some notable initiatives 21 2.5.2 COMESA–EAC–SADC 21 2.5.3 Minimum Integration Programme 21 2.6 Conclusions and recommendations 23 Annex 24 A2.1 First Phase of the Minimum Integration Programme, 2009–2012 24 Bibliography 26 iv Assessing Regional Integration in Africa (ARIA V): Towards an African Continental Free Trade Area Chapter Three: The Theory of Free Trade Areas: The Case for an African Continental Free Trade Area 29 3.1 Theoretical perspectives on potential gains and losses from FTAs 30 3.1.1 Static effects: trade creation and trade diversion 30 3.1.2 Dynamic effects 31 3.2 Prevailing conditions, benefits and challenges 32 3.2.1 Prevailing conditions 32 3.2.2 Benefits of the CFTA 34 3.2.3 The challenges 35 3.3 Conclusion 36 References 36 Chapter Four: The African Continental Free Trade Area: An Empirical Analysis 39 4.1 Economic effects of the CFTA 40 4.2 Conclusion 41 Annexes 42 A4.1 Methodology 42 A4.2 Economic impacts of the Continental Customs Union to be established by 2019 49 References 52 Chapter Five: Perspectives for Fast-tracking an African Continental Free Trade Area 55 5.1 Guiding Principles 56 5.1.1 Liberalizing trade in goods 56 5.1.2 Ensuring trade-related protection 56 5.1.3 Liberalizing trade in services 57 5.1.4 Cross-cutting issues 57 5.2 Key steps to consider 58 5.2.1 Background technical work 58 5.2.2 Developing negotiating principles and guidelines and launching the negotiations 58 5.2.3 Drafting the CFTA protocol and related Annexes 58 5.2.4 Expert group meetings 59 5.2.5 Launching the negotiations 59 5.2.6 Finalizing the agreement and bringing it into force 59 References 59 v Chapter Six: Movement of People and the Right of Residence and Establishment 61 6.1 Integrating factor markets 62 6.2 Protocols on temporary immigration 64 6.2.1 Labour policies in RECs 64 6.2.2 Mutual recognition of certificates 65 6.2.3 Challenges for the free movement of labour 65 6.3 Trends in permanent immigration 65 6.4 Protocols and regulations 68 6.5 Other regional initiatives 70 6.6 Challenges of permanent immigration and free movement of people 71 6.6.1 Non-security concerns 71 6.6.2 Security concerns 72 6.6.3 Measures to relieve security concerns 72 6.7 Conclusions and recommendations 73 References 74 Chapter Seven: Movement of Goods and Services in Africa 77 7.1 Comparison of trade policies 77 7.1.1 Tariff liberalization and time-frames in the RECs’ FTAs 78 7.1.2 NTBs 81 7.1.3 Rules of origin 81 7.1.4 Safeguards 82 7.1.5 Areas of convergence and divergence 83 7.2 Assessing intra-African trade by country 83 7.3 Commodity structure of selected RECs’ merchandise trade 89 7.4 Infrastructure 95 7.5.1 Issues 95 7.5.2 RECs’ initiatives 97 7.6 Trade facilitation 102 7.6.1 Regional programmes 103 7.6.2 Gains from trade facilitation 106 7.7 Identifying trade opportunities in Africa 106 7.8 Conclusion 111 Annex 111 A7.1 Scope of trade complementarity 111 Regional orientation index 112 Trade complementarity among African countries 113 Revealed comparative advantage and complementarity indices 116 References 120 vi Assessing Regional Integration in Africa (ARIA V): Towards an African Continental Free Trade Area Chapter Eight: Movement of Investment and Capital in Africa 123 8.1 What prompts FDI? 124 8.1.1 Cross-border competitive advantages 124 8.1.2 Economic determinants of FDI 125 8.1.3 Motives for FDI 125 8.1.4 Modes of FDI 126 8.2 Types, sizes and trends of cross-border investment and capital flows 127 8.2.1 Inflows to Africa 127 8.2.2 Intra-African flows 128 8.3 Improving intra-African movement of investment and capital 131 8.3.1 International investment agreements and investment-specific policy measures 131 8.3.2 Macro-economic environment 134 8.3.3 Financial market development 134 8.3.4 Business environment 137 8.4 Conclusions and recommendations 137 8.4.1 Rationalizing IIAs 138 8.4.2 Improving macro-economic performance and harmonizing policies 138 8.4.3 Developing and integrating regional financial markets 138 8.4.4 Improving the business environment 138 Annex 140 A8.1 A roadmap for regional financial integration 140 References 142 Tables Table 2.1 Africa’s integration process 15 Table 2.2 Destination of Africa REC exports, average 2000–2009, per cent of world total 19 Table 2.3 Sources of Africa REC imports, average 2000–2009, per cent of world total 20 Table A2.1 First Phase of the Minimum Integration Programme, 2009–2012 24 Table 3.1 Features of regional integration 29 Table 3.2 Trade within continents, 2009 (per cent of total trade) 32 Table 3.3 Commodity structure of African exports (per cent) 33 Table 3.4 Average export and import times (days) 33 Table 3.5 Intra-REC trade as a share of total African trade, 2004 35 Table 4.1 Protection and tariff revenues before and after trade reforms 41 Table 4.2 Changes in Africa’s export volumes by sector, relative to the baseline scenario, 2022, per cent 42 Table A4.1 Geographical decomposition 45 Table A4.2 Sector decomposition 47 vii Table A4.3 Average protection on African countries’ imports from and exports to Africa, 2004 48 Table A4.4 Changes in average protection and African imports and exports after establishment of a CCU as compared to a CFTA, 2022, per cent 51 Table 6.1 Estimates of immigrant populations in selected REC member states 67 Table 6.2 Protocols and regulations for regional integration 68 Table 7.1 Tariff reduction schedule for EAC, 2000 79 Table 7.2 Tariff reduction schedule for ECCAS 80 Table 7.3 Value of exports to and imports from Africa by each country, 2007–2009 (US$ million) 84 Table 7.4 Africa’s share of total exports based on average exports, 1995–2009 (per cent) 87 Table 7.5 COMESA trade with Africa and the world by product group (US$ million) 90 Table 7.6 EAC trade with Africa and the world by product group (US$ million) 91 Table 7.7 ECOWAS trade with Africa and the world by product group (US$ million) 92 Table 7.8 SADC trade with Africa and the world by product group (US$ million) 93 Table 7.9 UEMOA trade with Africa and the world by product group (US$ million) 94 Table 7.10 African Action Plan priority infrastructure interventions, 2010–2015 96 Table 7.11 Strategic water infrastructure projects, SADC 102 Table 7.12 Potential trade opportunities for COMESA in Africa in 2010 (US$ million) 107 Table 7.13 Potential trade opportunities for EAC in Africa in 2010 (US$ million) 108 Table 7.14 Potential trade opportunities for ECOWAS in Africa in 2010 (US$ million) 109 Table 7.15 Potential trade opportunities for SADC in Africa in 2010 (US$ million) 110 Table A7.1 Regional orientation index for Africa 112 Table A7.2 Merchandise trade matrix, imports, annual, 1995–2009: share of imports from Africa in world imports 113 Table A7.3 Revealed comparative advantage of African countries 116 Table 8.1a Trade or FDI: factors underlying MNE choices 125 Table 8.1b Trade or FDI: factors underlying MNE choices 125 Table 8.2 Cross-border M&A, 1987–2008, and greenfield investment projects, 2003–2007, in Africa 130 Table 8.3 Total and intra-regional FDI projects in Africa, cumulative 2003−2010 131 Table 8.4 Capital market structures, sub-Saharan Africa 136 Figures Figure 4.1 Changes in exports of African countries by origin, relative to the baseline scenario, 2022 (US$ billion) 41 Figure A4.1: Change in African exports by destination for CFTA and CCU scenarios with and without trade facilitation (TF) measures, relative to the baseline, 2022 51 Figure 7.1.