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Week 6: Trade and Regionalism in Africa

Development Problems in Africa

Spring 2006

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Contents– Trade Outlook– North-South to South-South Trade– Commodities– Trade Terms– Regionalism

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Trade Outlook African countries are still relying on primary goods who

se prices have declined in the past, as predicted by Raul Prebisch in 1950s. His argument led to the import-substitution industrialization policy (see handouts).

However, recent boost of the prices of primary goods have boosted economic growth of some African countries, yet the boost could be short-lived (see handout).

African exports face protections of developed countries.

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0

2

4

6

8

10

12

14

16

18

20

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

% of

Wor

ld T

rade Asia

Africa

Share in the World Trade

Source: IMF Int’l Finance Statistics

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Gradual Changes of Trading Partners Originally, the African trade was mainly with European

countries, but recently the trade with non-EU countries has increased (gradually).

Notable, trade between African countries have been increasing especially with South Africa.

In the post-Apartheid period, from 1990 to 1995, the trade between SA and non-African countries increased from 14 to 21 billion.

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Regional Share of African Trade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1985 1996 1995 2000

Reg

iona

l Sha

re

EUEU

Africa

US

Others

Source: Taniguchi (2005)

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1995 20000%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 1995 2000

South Africa’s Trade with Others

ImportExport

Non-African

SADC

Non-SADC African

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Summary Many African countries have not succeeded in diversif

ying their export commodities and are facing a declining terms of trade.

Even if barriers to international markets are removed, they will still need to rely on primary goods. Thus, they need to develop industries >> Prof. Sonobe’s course.

In addition, regional integrations have been establish inter-regional trade through regional integrations. Next, we focus on regional integrations.

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Regional Trade

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Kenya-Uganda Border

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Kenya-Uganda Border 2

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Kenya-Rwanda Border

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Type of Regional Integrations

1. A free trade area (FTA) occurs whenever two or more countries agree to lower and ultimately remove barriers to trade, while maintaining their respective external tariffs against other countries.

2. A custom union (CU) refers to an arrangement whereby two or more countries agree not only remove trade barriers among themselves but also maintain a common external tariff (CET) against products from other countries.

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Type of Regional Integrations3. A common market (CM) is an arrangement thatobliges

two or more countries to remove internal barriers, adopt common external barriers against trade from third countries, and promote the free movements of goods and services, labor, capital, and technology.

4. An economic and monetary union (EMU) is an arrangement that coordinate their economic policies in order to achieve a common currency, in addition to the requirements of CM.

5. A political union (PU) is the final stage of regional integration, because it means that in addition to the cumulative obligations of an economic and monetary union, participating countries will share political decision-making over foreign policy, security policy, and so forth.

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Regional Integrations in AfricaRegional Support

FTA CU CM EMU

No tariff within

X O O O O

Common tariff to outside

X X O O O

Free Inputs Movement

X X X O O

Common Economic Policy

X X X X O

ECOWASUEMOACEMAC

EACCOMESA

SADC

SACU (ECOWAS)(UEMOA)(CEMAC)

(COMESA)(SADC)

(EAC)

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Regional IntegrationsA. African Economic Community (AEC) includes 52 countri

es, almost all African countries, was inaugurated in 1991, aims to be EU of Africa.

B. Arab Maghreb Union (AMU) includes 5 North African countries, was inaugurated in 1989.

C. Common Market for Eastern and Southern Africa (COMESA) includes 23 Eastern and Southern African countries, was established in 1993, aims to establish a tree trade by 2000, implement a common external tariff by 2004, and later a common market.

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Regional IntegrationsD. East African Community (EAC) includes Kenya,

Uganda and Tanzania, was launched in 1967 but was dissolved in 1977 because of charges and countercharges over unequal distributions of benefits. Yet, it is revived in 1994.

E. Economic Community of Central African States (ECCAS) includes 10 Central African countries, was set up in 1983 and aims to promote financial and commercial cooperation by eliminating internal barriers and adopting a common external tariff.

F. Economic Community of West African States (ECOWAS) includes 16 Western African countries, was established in 1975 to promote cooperation and development in economic, social, and cultural activity.

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Regional IntegrationsG. Southern Africa Development Community (SADC)

includes 14 South African countries, was funded in 1992 to defuse the potential economic threat from a more powerful post-apartheid South Africa. But South Africa joined the SADC in 1994.

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Regional Integrations in AfricaStates Pop.

millionGNP

Billion US$

Year

AEC 52 659 313 1991

COMESA 23 380 170 1993

SADC (incl. SA)

14 200 170 1992

AMU 5 77 130 1989

ECOWAS 16 236 70 1975

ECA 3 86 26 1994, 1967

ECCAS 10 90 19 1983

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Interregional Bloc Exportin $million in % of Total Exports

1990 2000 1990 2000

AEC

COMESA 963 1534 6.6 6.0

SADC (1994 SA)

930 4419 2.8 12.2

AMU 958 1081 2.8 2.3

ECOWAS 1533 3331 7.8 10.8

ECA 229 504 13.3 17.6

ECCAS 163 181 1.4 1