Our analysis on constraints to African development reveals that the fundamental constraints facing our economies are structural: continental economies are characterised by underdeveloped, small, narrow production structures, and mainly commodity production; economic imbalances between African states and small manufacturing sectors. In addition, trade barriers and relatively small individual markets equally serve to undermine effective intra-African trade.

Author: 
Kgalema Motlanthe
Date published on SAFPI: 
Tuesday, 15 May, 2012
Date published on source: 
Thursday, 10 May, 2012
Source organisation: 
GCIS

Enhancing SA's and Africa's development through regional and continental integration

I am deeply honoured to share with you my humble reflections on the vexed but critical question of 'Enhancing South Africa's and Africa's Development through Regional and Continental integration'. Indeed the challenge of regional and continental integration is at the very core of our national and regional efforts to accelerate and realise Africa's sustainable growth and development.  The political and economic integration of Africa has been and will continue to drive the African Agenda.

The African continent is therefore increasingly focusing on regional integration as a strategy for achieving sustainable economic growth as there is a consensus that by merging economies and pooling capacities, endowments and energies, the continent can overcome its daunting development challenges.

Deeper integration would enable Africa not only to achieve sustained and robust economic growth, but also ensure poverty alleviation, enhanced movement of goods, services, capital and labour, socio-economic policy coordination and harmonisation, infrastructure development as well as the promotion of peace and security within and between the regions.

The favourable outlook for the region is based on modest inflation, steadier exchange rates, and a smaller debt burden owing primarily to the debt write-offs in 2006 and 2007 (although some countries have been building up their debt again since then).

Thus, with buoyant growth prospects and the rising number of African consumers, this vast continent, comprising 53 countries - nay 54 now with South Sudan, and immense natural resources, demands even more attention of investors.

Individually, the 54 African states are small by global standards. The potential to attract the necessary Foreign Direct Investment lies in regional integration. A larger, integrated, and growing regional market would enhance the interests of foreign investment and provide a basis for enhanced intra-African trade.

  • The question is what are the key constraints to development in Africa and what is the role of regional and continental integration?

Our analysis on constraints to African development reveals that the fundamental constraints facing our economies are structural: continental economies are characterised by underdeveloped, small, narrow production structures, and mainly commodity production; economic imbalances between African states and small manufacturing sectors.

In addition, trade barriers and relatively small individual markets equally serve to undermine effective intra-African trade.

In this connection the first barrier is the lack of integration of systems that allow the movement of people, goods and services across borders.

At many African borders there are unnecessary delays due to different certification systems, a lack of coordination between the officials of the different countries across the border, and weak border infrastructure - not enough space, facilities and even border officers.

Aware of this challenge, African countries are committed to getting borders to operate more smoothly. Presently, there are some model border crossings in Africa that work very well from which we have learnt with the view to implementing the necessary reforms, as a matter of urgency.

The second barrier is poor infrastructure. Road, rail or power facilities are sometimes substandard, slowing down transport and worst still, making it cheaper for coastal countries to import items from far across the oceans than purchase them from their neighbours.

The North-South corridor programme is a key initiative of the African Union to address this challenge. There are several other similar infrastructure projects across Africa.

The final barrier is the fact that there is not enough industrial diversification amongst African countries. In many cases neighbours produce largely similar products and there is no great reason to trade amongst each other.

The solution here is to strengthen the competitiveness in African economies in a range of industries. To overcome this challenge we need top class education and skills development, microeconomic reforms and even stronger macroeconomic management.

The other challenge is clearly to overcome the underdeveloped structure of our economies, improve macroeconomic performance, political and corporate governance and thus, unlock the untapped potential that lies in both the region's human and natural resources.

For African countries to successfully integrate there has to be a degree of complementarity between economic structures of the constituent economies to create trade.

This requires that we give attention to diversifying production, particularly into higher value added products. There is also a need to invest in infrastructure development to promote inter-connectivity between economies.

This is the reason Africa is focussing its efforts on enhancing regional integration, underpinned by three critical elements: namely, market integration, industrial and infrastructure development.

Enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited. The cross-border production networks that have been a salient feature of development in other regions, especially East Asia, have yet to materialise in Africa. Hence the renewed focus on sectoral cooperation through a value-chain approach to industrial development.

South Africa's approach to integration is a holistic one that combines market integration with cross-border infrastructure development and rehabilitation, and with programmes of policy coordination to develop cross-border, industrial value chains.

Diversification and industrial development in our economies are essential as it appears irrefutable that the lack thereof, coupled with inadequate productive capacity impede African economic growth and development.

Our economic strategies therefore prioritise programmes that aim to diversify our economic structures and build the requisite production capacity that will ensure that each of economies produce a wider range of ever-increasing value added products that can be traded in our national, regional and continental markets.

Our trade strategies seek to support these objectives and thereby ensure that Africa produces goods and services that are increasingly competitive at the global level over the longer term.

  • As of now processes are afoot to integrate the three existing African regional economic communities at a continental level.

The Tripartite Free Trade Agreement (TFTA) between the Common Market for East and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC) is a notable development that creates the possibility to foster wider regional economic integration and development.

The Tripartite Initiative will combine the markets of 26 countries with a combined population of nearly 600 million people, and a combined Gross Domestic Product (GDP) of one trillion US dollars. It will give us the scale that could really launch a sizeable part of the continent onto a new developmental trajectory.

The establishment of the Tripartite Free Trade Agreement will provide a compelling and accessible marketplace for business.

The Tripartite Free Trade Agreement also offers the possibility to disentangle the overlapping memberships of different regional integration groups, which raises the transaction costs of trade and hinders efforts to deepen regional economic integration.

Of the 53 countries in Africa, (that is minus the new member, that is South Sudan) 27 are members of two regional groupings, 18 belong to three, and one country is a member of four.

The Tripartite region is well endowed in many natural resources and to support our diversification efforts, we encourage investment that will add-value to our natural resources at source.

The market access initiative is supported by a clear infrastructure development programme through the North-South Corridor, which is a trade facilitation programme that is aimed at improving the road and rail infrastructure across the Tripartite region.

There are clear bankable projects that are ready for investment. These include, for instance, 6 200km of road infrastructure maintenance , as well as rehabilitation and upgrading.

Demand for rail freight services is expected to increase, especially with the increase in existing and new mineral production.

After the completion of the Tripartite Free Trade Agreement initiative, we envision an establishment of a continent-wide Free Trade Area with a combined market of 1 billion people and an estimated GDP of US$2 trillion.

Closer to home, the entire Southern African Development Community stands to benefit from the infrastructure programme recently announced by the South African president, HE Jacob Zuma.

Mutually beneficial infrastructure projects, which include strategic investments in water, transport and energy to support competitively priced trade options for the region, are within our sight.

Together with our neighbours and with the support of our private sector partners we will, through the significant capacity which has been developed in our state owned companies and the strength of the financial markets in the country, address social and economic infrastructure whilst laying the foundations for the longer term strategic investments in projects such as Grand Inga in the Democratic Republic of the Congo.

The immediate benefits to the region through smarter planning and collaboration lie in carefully balancing a number of aspects to achieve optimal collective socio-economic harmony and strength.

Taking into account the lessons learnt from delivering the 2010 FIFA World Cup, we have introduced the Presidential Infrastructure Coordinating Commission with the object of prioritising and improving coordination in the delivery of the social and economic infrastructure.

We have carefully selected projects in energy, transport and logistics that will drive growth and job creation. These choices and options took account of sustainable local manufacturing of materials and products to support the region based on the large number of jobs which will be created.

Another focus in South Africa and the region is appreciating our position of strength in supporting global food security by investing in much needed agro-logistics and food manufacturing capabilities.

Our 20-year infrastructure plan will, through its significant investment in much-needed core infrastructure, unlock valuable mineral reserves and deposits in South Africa creating further opportunities for downstream beneficiation and exports.

Over the years the quality of macro-economic management as well as that of economic leadership in Africa has improved enormously. Finance ministers and central bankers are top class in many African countries today, and their governments take them seriously. A good example is the Governor of the Central Bank of Zimbabwe who was able to run the Zimbabwean economy on a cash basis.

We have learned from poor African performance in the 1970s and 1980s; we have learned from the crises in Latin America in the 1980s and 1990s; we have learned from the Asian crisis and we are now learning from the European crisis.

We should remember that during the world financial crisis in 2009, when the rich economies of the North were, on average, shrinking at about 2 percent, sub-Saharan Africa was still growing at about three and a half percent on average.

One of the most important reasons for this sustained growth was that debt levels were low in Africa. The other key macroeconomic variables were within reasonable levels too.

It is true that the debt relief programmes of the past decade helped to some degree; but they were accompanied by outstanding domestic economic management.

We should not forget that a significant part of the African growth story is about rising domestic consumption. This shows that growth is not entirely unbalanced and not purely dependent on resource exports.

Contributing to the improved economic performance in Africa is the emergence of accountable and democratic governments. Since the end of the Cold War, democratic and accountable governments have been proliferating.

In the past year we have seen some African countries experience social upheavals because of the need to bring about democracy and political stability.

This is part of a continuing trend in Africa that began to take off in the early 1990s. Accountable governments mean better management, greater transparency, less corruption and greater responsiveness to the needs of ordinary citizens. This is how the foundation for sustainable, long term growth is being built in Africa.

And, yet, Africa still receives less than five percent of foreign investment inflows. It seems that the African growth story has not yet been fully understood.

Perhaps some are still labouring under the burden of misconceptions.

Many investors may still be viewing Africa as being a more challenging place to do business in than other emerging market regions; this despite the fact that in the World Bank's most recent Ease of Doing Business rankings, 14 African countries ranked ahead of Russia, 16 ahead of Brazil and 17 ahead of India.

Many countries in Africa have implemented much stronger economic policies, as shown by their control of inflation, improved public finances and building-up of reserves.

For instance, inflation for the 38 African oil-importing countries declined from 12.7% from 1997 to 2003 to 7% in 2007. These prudent economic policies helped most countries mitigate the impact of the 2009 crisis (Wegner, 2011).

There is an impression that conflict is endemic in Africa and that any improvement in the political climate can only be temporary.

However, the focus on war and anecdotal evidence has hidden real progress towards more stable and open political systems in Africa.

In the last decade Sub-Saharan African has seen stronger political stability punctuated with political demonstrations 2007/08, which, in turn, signified deepening democracy and strengthening civil society.

These positive political trends are underpinned by the African Union Constitutive Act, which does not recognise governments that come into being through unconstitutional means.

The swiftness with which both Economic Community of West African States and the African Union intervened in the recent cases of political upheavals in Africa lends credence to the contention that usurpation of power in Africa and the imposition of undemocratic government on its people will not be tolerated.

Encouragingly political repression has also lessened in the past decade, as more governments began adhering to basic political and civil rights, accepting more freedom of the press; making important progress in ensuring respect for the rule of law, fighting against corruption and improving citizens' safety and building stronger political institutions.

Against this positive background, Africa's efforts at regional and continental integration could not be happening under more propitious conditions. Both the political and economic conditions are now more than ever germinal to an irreversible process of integration.

Regional and continental integration is the foundation for Africa's socio-economic development and political unity, and essential for South Africa's prosperity and security.

Consequently, Africa is at the heart of South Africa's foreign policy. South Africa will therefore continue to support regional and continental processes that enhance regional integration, thereby significantly increasing intra-Africa trade, and promoting sustainable development in Africa.

Given that Europe has both the technology and the necessary expertise while Africa offers huge investment opportunities in the current infrastructure programmes, a potential for a win-win situation for both Africa and Europe exists.

Such a cooperation can only serve to augment current European efforts to revitalise its economy in the light of the ongoing economic hardships.

We are convinced that with the progress made so far, regional and continental integration is not only working well for our continent, but also, that it holds out great prospects for investments from outside of Africa.

From our viewpoint as Africans, we owe it to ourselves to restore African dignity and pride of the African by ensuring that our people reap the benefits of the aforementioned socio-economic developments.

Based on the above developments which are at once shaping current and future African socio-economic landscape, it is my contention that the tide has turned and Africa is poised to make the great leap forward.

Indeed there is no turning back. The current crop of leadership of Africa is ready to bring about a better African condition defined by the necessary human comfort to which all humanity is entitled.

In this connection, the regional and continental integration have proven to be among the most promising means to meet this goal.

Finally, I believe that enhancing African development through regional and continental development is not a question of whether it can happen or not but when it will reach completion.

  • Public Lecture delivered by Deputy President Kgalema Motlanthe at the University of Finland on the topic: "Enhancing South Africa's and Africa's development through Regional and Continental Integration” 10 May 2012

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