Friday, 22 July 2016

Africa’s Progress Dependent on Strong Intra-African Trade & Efficient Governance

This month, two major conferences took place; the 27th African Union Summit in Kigali and the 14th conference of the United Nations’ Conference on Trade and Development (UNCTAD) in Nairobi. The discussions at these events will undoubtedly shape the development trajectory of Africa. I will not explicitly delve into the specific outcomes of the conferences but outline the fundamentals that need to be wholesomely addressed for Africa to experience significant socio-economic growth and development.

As I have documented before, the progress of Africa largely depends on the willpower and effort of the Africans. However, the input of the developed economies and the emerging economies cannot be ignored. Fast forward, at the 14th edition of the UNCTAD, the developed economies resisted the efforts of the developing countries to strengthen UNCTAD and make it the main international body with the mandate of addressing trade inequalities and other pertinent issues that revolve around international trade. The developed countries cited that already the World Trade Organization has been tasked with that mandate.

The move by the developed economies to block such an initiative is a hegemonic disposition. To set the record straight, the WTO is an amorphous institution and not as solid and definite as other multilateral institutions in terms of their scope of work and operations. The WTO only serves as a platform for trade negotiations for the member states. This is certainly an impediment fronted by the developed nations of the world.

The progress of Africa should not be tied down by the red tapes created by the developed nations in the disguise of promoting trade discussions through the WTO or the UNCTAD. This leads to some of the fundamental issues that are to be tackled efficiently and effectively by the African countries and the respective trading partners.

The level of intra-African trade which currently accounts for 11.3% of the total trade activities of the continent needs to increase. This implies that 88.7% of Africa’s trading activities are with the other regions of the world. One key step in enhancing intra-African trade is to do away with the extant regional blocs. Africa has 8 regional economic blocs with each having its own trade concessions and agreements. According to a policy paper known as “Regional Integration: Uniting to Compete” by the Mo Ibrahim Foundation published in 2014, at least 28 African countries belong to 3 or more regional communities/groupings and 39 countries are members of more than one regional economic community.

The 8 regional blocs were the fruits of the 1991 Abuja Treaty under the auspices of the defunct Organization of African Unity (OAU) that were considered as the foundation for the African Economic Community envisaged to be established by 2028. This African Economic Community will operate on the basis of a customs and monetary union. The realization of the economic integration of the African states is a function of the free border movement across the African countries. A positive development is that during the 27th AU Summit, the visa-free access services were launched though on a piloting phase.

But caution must be taken in relation to the opening up of the borders and the imminent economic integration of the African states. An expected challenge as a result of the economic integration of African economies will centre either on the advent of convergence or the furtherance of divergence; that is, will the integration promote collective development or it will lead to a wider gap between the slightly well-off African countries and those that are less developed? Research shows that the economic integration of economies that are at nearly the same level especially the developing economies leads to more divergence than convergence; stronger economies and weaker economies producing similar commodities within the same region implies that the former has an edge over the latter (competitive advantage).

The enactment of the free border movement will obviously lead to immigration whose consequences are likely to be: brain drain from the failed states such as Somalia and South Sudan, xenophobic attacks, populist and neo-fascist politics in countries with a relatively larger proportion of immigrants, terrorism, drug trafficking among others. The realization of the intra-African trade is however dependent on the degree of spatial inclusion; infrastructural development.

The question of illicit financial flows from Africa needs a viable and almost permanent solution. The 14th edition of the UNCTAD witnessed a number of advocacy groups calling for the multilateral institutions and the developed nations to pay attention to this issue. There have been a number of initiatives and conventions to tackle the stated matter. But conventions entail mere talk and less action. It has been established that Africa loses about $50 billion annually through illicit financial flows. This translates to about 2% of the continent’s Gross Domestic Product (GDP). 

More startling, however, were the revelations by Curtis Research documented in a research paper entitled “Honest Accounts? The True Story of Africa’s Billion Dollar Losses,” published in July 2014. The report reveals that the total financial inflows (aid, foreign direct investments, loans) to Africa amount to an average of $134 billion annually compared to an outflow of $192 billion thus a deficit of $58 billion. This translates to 5.8% of the GDP for the inflows and 8% of the GDP for the outflows. 

This is a bit skewed because Africa seems to lose more than what it gains from the various trade concessions and negotiated pacts with the other regions of the world. There is need, therefore, for the formulation of international treaties, laws and framework that should guide the economic activities between Africa and the other developed economies and emerging markets to significantly cut on this financial haemorrhage. 

But also the respective African governments have a primary role to play in institutionalizing efficient governance systems and structures. One is to weed out corruption especially in the procurement processes because some of the multi-national corporations (MNCs) seem to be bribing the government officials. The cost of corruption definitely increases the operations cost of these MNCs implying that the more flawed the system of governance the higher the amount of the repatriated profits from the continent. Poor governance creates a fertile ground for tax evasion and the prevalence of the black market.

Therefore, in seeking to address the developmental challenges affecting Africa, priority has to be accorded to the facilitation of intra-African trade and the enabling factors such as infrastructure and governance issues in terms of the illicit financial flows from the continent and generally the financial outflows from the continent.

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