Regional Integration and Trade in Africa

Mthuli Ncube, I. Faye, A. Verdier-Chouchane, Mthuli Ncube, I. Faye, A. Verdier-Chouchane, Kenneth A. Loparo

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137462053
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

This book reviews the current trends and challenges of regional integration and trade in Africa. It provides valuable policy recommendations aimed at stimulating the debate among the government, private sector and development community on the ways to promote regional trade for Africa's economic development.

Part I

Intra-African Trade Performance and Regional Integration

1

Competitiveness and Integration through Trade in CEMAC Countries: Comparative Advantage and Contribution to the Trade Balance

Joseph Parfait Owoundi

Introduction

Given ideal conditions of fair competition without political pressure, David Ricardo¹ showed that all countries, even the least competitive, have an interest in joining the game of international trade and specializing in types of production where their relative advantage is greatest, or their disadvantage smallest.

International trade generally revolves around theories of comparative advantage and country specialization (Smith, 1776; Ricardo, 1817). Considering other factors, such as factor endowments, Ohlin (1933) and Heckscher (1949) sought to explain further why states engage in trade. Samuelson (1949) complemented their work with a mathematical formulation, but debunked their predictions.

Over the past two decades, globalization has brought about a technological and organizational revolution that is disrupting production and trade systems. Increased product differentiation, logistical advances, economies of scale and new strategies are increasing national and international competition. In parallel, the opening of borders and trade liberalization are impacting world trade (Desmas, 2005).

The recent proliferation of regional trade agreements (RTAs), and in particular customs unions, is leading governments to consider harmonizing their border measures to foster regional integration and economic competitiveness.

Competitiveness is of prime importance to analyzing the macro-economic performance of countries. For a country and its trade partners, competitiveness is used to compare characteristic factors of an economy and for analyzing trends in international trade. Further, the development of ‘competitiveness poles’ (regional integration vectors) is essential for boosting productive capacity and attracting investment.

Economic and Monetary Community of Central Africa (Communauté Economique des Etats de l’Afrique Centrale – CEMAC) member states are gradually aligning with the Treaty of Rome, which places a premium on the ‘standstill rule’, which is designed to check the erection of barriers to inter-state trade. These members have set a number of objectives:

• strengthening the competitiveness of member states’ economic and financial activities, within the framework of an open and competitive market and a rationalized and harmonized legal environment;

• creating a common market among member states, based on the free movement of persons, goods, services, capital; the right of establishment for self-employed or employed persons; and a common external tariff and a common trade policy.

Given these two objectives, and current competitiveness indicators for CEMAC members, it is important to ask: Are the countries of the sub-region competitive compared to other countries, particularly those of West African Economic and Monetary Union (WAEMU)? How well do CEMAC countries perform in intra-industry and inter-industry trade?

This study assesses the competitiveness of CEMAC countries within sectors and between sectors in the CEMAC and WAEMU regional markets. It seeks to define the profile of competitive countries in the sub-region and evaluate the performance of exports and imports within CEMAC and outside it (in the WAEMU zone).

First, data and indicators from the World Economic Forum (2011, 2012 and 2013 reports) are used to build a competitiveness profile of CEMAC states. Second, the revealed comparative advantages (RCA) of CEMAC countries is calculated to determine competitiveness scales and thresholds. Since RCAs focus solely on exports (unilateral vision of international trade), the contribution to trade balance indicator (CTBi) is also calculated, in line with RCA logic to allow for analysis of import structure. These analyses use CEMAC and WAEMU data on exports and imports.

1 Definition of concepts

Economic competitiveness is the ability of a business, an economic sector or a territory (country, economic area, etc.) to sell and supply one or more tradable goods or services in a given market in a situation of competition over the long term.

According to the OECD, competitiveness is ‘the extent to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets while simultaneously maintaining and expanding the real incomes of its people over the long term’. So competitive countries are those that sell comparatively more than others at home and abroad (that is, exports) and increase wealth at home over the long term.

At the microeconomic level, the competitiveness of a company is its ability to hold a strong position in a market. At the macroeconomic level, the competitiveness of a national economy is the ability of its productive sector to meet domestic and foreign demand, ultimately for the purpose of raising living standards for its citizens. A national economy’s market share can also be measured (national exports compared to a worldwide total or to a limited group of comparator countries) and offers an excellent indicator of competitiveness.

Revealed comparative advantages

RCAs are used to identify the main characteristics of inter-sector specialization. For a given sector, they consist of dividing its percentage of exports in relation to total exports for the country by the percentage of the sector’s exports in relation to total exports for a reference area, for example the world.

Trade integration

In economics, integration refers to the strategy of bundling activities within a company. This enables a company to master the technical, commercial or financial expertise to boost productivity and benefit from synergy effects. ‘Horizontal’ and ‘vertical’ integration can also be differentiated.

Vertical integration is when such bundling concerns the different stages of production and distribution for the same type of goods or services. Horizontal integration (or horizontal concentration) is when a company develops its business at the same level of the value chain as its products. The goal is to spread costs over a larger quantity of products, to limit contingencies through substitute products or simply to avoid competition.

By definition, economic integration is the most developed form of a regional trade agreement: a single market reinforced with common economic and social policies.

2 Regional integration in the CEMAC zone

‘Where there is trade, there are customs. The purpose of trade is to export and import goods for the State and the purpose of customs is to collect duties on the same exports and imports, also for the State’ (Montesquieu, The Spirit of Laws, 1748).

In Africa, growth rates are impressive. Increased foreign direct investment (FDI) has fuelled a rebounding economy over the past decade. Between 2001 and 2008, Africa’s gross domestic product (GDP) recorded a 5.9% annual average growth. While Africa is less closely linked to the global financial markets than other regions of the world, it has not been spared the impact of global financial crisis. Indeed, it threatens Africa’s progress of recent years in economic development, reform of public policies and institutions and, in particular, poverty alleviation.

In the CEMAC zone, development of the countries’ key strengths and prospects depend on their geographic location, which offers a comparative advantage in t...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures
• List of Maps
• List of Tables
• Foreword by Gilbert Mbesherubusa
• Acknowledgments
• Notes on Contributors
• List of Acronyms
• Introduction: Understanding Africa’s Regional Trade
• Part I: Intra-African Trade Performance and Regional Integration
• Part II: Measuring Trade Potential: The Gravity Model Approach
• Part III: Industrialization Strategy and the Issue of Deindustrialization
• Part IV: Impact of Currency Union on Trade
• Conclusion: Enhancing Intra-African Trade through Regional Integration
• Index