Assessing Regional Integration in Africa IV

African Union African Development BankEconomic Commission for Africa

Enhancing Intra-African Trade

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© United Nations Economic Commission for Africa, 2010Addis Ababa, Ethiopia

All rights reservedFirst printing May 2010

ISBN: 978-92-1-125114-2Sales Number: E.10.II.K.2

Material in this publication may be freely quoted or reprinted. Acknowledgement is requested, together with a copy of the publication.

The boundaries and names shown on maps inside this report do not imply official endorsement or acceptance by the United Nations, African Union Commission or the African Development Bank.

Edited and designed by the ECA Publications and Conference Management Section (PCMS).

Cover photos: Left and right images, Wondimu Haile; Centre image, East African Community (EAC)

iiiTable of Contents

Table of Contents

Acronyms xiii

Acknowledgements xvii

Foreword xix

1 Introduction 1

Trade Matters 2

A Map of ARIA IV 5

2 The Status of Regional Integration in Africa 7

2.1 Introduction 7

2.2 Current achievements and challenges facing regional integration 10

2.3 Cross-cutting issues 32

2.4 Conclusion 35

References 36

3 Theoretical Perspectives on Trade, Growth and Poverty Reduction 39

3.1 Introduction 39

3.2 The connection between trade, growth and poverty reduction 40

3.3 Trade and finance 56

3.4 The African experience 61

3.5 Conclusion 64

References 70

iv Assessing Regional Integration in Africa (ARIA IV)

4 African Trade Flows and Patterns 75

4.1 Introduction 75

4.2 Intra-REC export and import trends 76

4.3 Assessing intra-African trade performance 85

4.4 Conclusions and Key Messages 99

Annexes 101

5 Informal Trade in Africa 143

5.1 Introduction 143

5.2 Defining informal trade 144

5.3 Types of informal goods 147

5.4 Characteristics of informal traders 150

5.5 Intra-African cross-border trade: The case of Ethiopia 154

5.6 The scope of trade flows 156

5.7 Trade volumes 159

5.8 Funding informal trade 163

5.9 Operational strategies 165

5.10 Informal trade’s strengths, weaknesses, opportunities and threats 167

5.11 Recommendations for stimulating intra-African trade 175

5.12 Conclusions and recommendations 178

Annex 182

References 191

6 Trade Facilitation and Intra-African Trade 193

6.1 Introduction 193

6.2 An economic case for trade facilitation 195

6.3 Facilitating trade in Africa 203

6.5 Cooperation among the RECs 232

6.6 Conclusion 236

References 238

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7 The Development of Trade Transit Corridors in Africa’s Landlocked Countries 241

7.1 Introduction 241

7.2 The United Nations Almaty Programme of Action 243

7.3 Developing trade transit corridors 247

7.4 Conclusions and recommendations 262

8 Payments Systems and Intra-African Trade 267

8.1 Introduction 267

8.2 The role of payments systems 267

8.3 Payments system development in Africa 269

8.4 Agenda for action 285

8.5 Key elements to support progress 290

8.6 Conclusion 291

References 292

9 Infrastructure and Intra-African Trade 295

9.1 Introduction 295

9.2 Transport sector 302

9.3 Information and communication technologies (ICT) sector 318

9.4 Energy sector 323

9.5 Utility regulation in Africa 329

9.6 Financing Africa’s infrastructure 331

9.7 Conclusions and recommendations 336

Annex 347

References 352

vi Assessing Regional Integration in Africa (ARIA IV)

10 Supply-and-Demand Constraints to Intra-Africa Trade 357

10.1 Introduction 357

10.2 Is there a potential for intra-Africa trade? A gravity model approach 359

10.3 Export supply constraints and lack of diversification as a challenge to intra-Africa trade 375

10.4 Conclusion and policy implications 390

Annex 392

References 397

11 Economic Partnership Agreements and their Potential Impact on Intra-African Trade 403

11.1 Introduction 403

11.2 EPAs and the RECs 403

11.3 Other multilateral arrangements and their impact on intra-African trade 408

11.4 Aid for intra-African trade 411

11.5 Conclusions and recommendations 417

References 420

12 Gender and Intra African Trade: The Case of West Africa 423

12.1 Introduction 423

12.2 Framing the issues 424

12.3 The West African sub-region as a pilot study 427

12.4 Women in trade in West Africa 433

12.5 Weak production systems, gender-blind policies and poor trade facilitation in West Africa 437

12.6 Cross-border trade in northeastern Ghana, southeastern Burkina Faso and northwestern Togo: A case study 447

12.7 Towards strengthening gender-equitable West African trade 451

References 458

vii

13 Trade Experience beyond Africa 465

13.1 Introduction 465

13.2 European Union (EU) 465

13.3 Association of Southeast Asian Nations (ASEAN) 471

13.4 The Southern Common Market (MECOSUR) 483

References 496

14 Looking Ahead: ARIA IV Conclusions and Recommendations 497

Table of Contents

Boxes

4.1 SITC project categories 89

4.2 Strengthening agricultural production and intra-African trade in strategic agricultural commodities through regional value chains 97

5.1 Informal currency exchange in informal trade in East Africa 165

5.2 Prospective demand in West Africa 169

7.1 North-South Corridor 258

8.1 Ten core principles for payment systems 271

8.2 The emergence and challenge of mobile remittance service 282

9.1 Goals of the Connect Africa Summit (Kigali, 2007) 322

9.2 NEPAD e-schools initiative 322

9.3 Infrastructure Consortium for Africa: ICA 333

9.4 NEPAD Infrastructure Project Preparation Facility (NEPAD-IPPF) 334

10.1 Revealed Comparative Advantage Computation 372

10.2 The role of government in supplying a skilled workforce, technology transfer and facilitating exports in Ghana and Kenya 387

Figures

4.1 Per cent share of intra-REC exports 78

4.2 REC exports to the rest of Africa (average 2000-2007) 79

4.3 Overall direction of exports (per cent) 80

viii Assessing Regional Integration in Africa (ARIA IV)

4.4 Exports to the EU and United States (per cent) 81

6.1 Estimated trade cost in industrialized countries 205

6.2 Transport costs (freight costs as a percentage of total import value) 206

6.3 Cost of export and import procedures in US dollars 206

6.4 Proportion of paved to unpaved roads in Africa 210

6.5 Share of paved roads in Africa, by subregion 211

6.6 Density and distribution of Africa’s road network, by region and subregion 211

6.7a Transport costs from selected cities to Rotterdam, The Netherlands 217

6.7b Transport costs from selected cities to Algeciras, Spain 217

6.8 Number of exports and imports procedures 219

6.9 Comparative customs delays in days, by region and country 221

6.10 Internet diffusion worldwide (users per 1,000 population) 224

6.11 Apparel exports of 22 countries benefiting from AGOA-SR by 2004 227

8.1 The most common architecture for national payments systems 270

8.2a The architecture of regional payments systems 273

8.2b The architecture of regional payments systems 274

9.1 Trans-African Highway network 305

10.1 The impact of transport and communication infrastructure on African trade (as % of Base Run) 384

10.2 Simulation of increasing membership in RECs by 50 per cent (Deviation from Base Run, in %) 384

10.3 The impact of an improved policy environment on African trade (Deviation from the base run, in %) 385

10.4 Analytical structure of the AERC study 386

11.1 Impact of different Swiss coefficients and S&D flexibilities on Gabon’s average NAMA tariffs 410

11.2 Aid progress for trade commitments to Africa (current US$ million) 414

11.3 Allocation of AfT commitments by categories in Africa (per cent of total) 415

11.4 Allocation of AfT supplies to ECOWAS by broad categories 415

13.1 Share in world trade, 2007 469

13.2 European trade with the world 470

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13.3 Distribution of GDP for ASEAN countries, 2007 473

13.4 ASEAN world imports and exports, 1996-2007 476

13.5 Distribution of ASEAN trade to the world by country, average 2006-2007 477

13.6 Intra-ASEAN trade patterns 478

13.7 Intra-ASEAN trade patterns by country 478

13.8 Share of trade in ASEAN as per cent of the region’s total trade (average 2006-2007) 479

13.9 MERCOSUR world imports and exports, 1996-2007 489

13.10Distribution of MERCOSUR trade to the world by country, average 2000-2007 491

13.11Intra-MERCOSUR trade patterns 492

13.12 Intra-MERCOSUR trade patterns, by country 492

13.13 Share of trade within MERCOSUR as a percentage of the country’s total trade, average 2006-2007 493

Tables

2.1 Status of efforts to establish FTAs and customs unions in the eight RECs 11

2.2 Proposed COMESA timetable, 2000-2014 21

2.3 RECs macroeconomic convergence criteria Inflation rates (Average) 24

2.4 Growth performance (average) 25

4.1 Intra-REC exports 2000-2007 (in US$ millions) 77

4.2 REC exports to rest of Africa in US$ millions, 2000-2007 79

4.3 Direction of REC exports in US$ millions, average between 2000 and 2007 80

4.4 Intra-REC imports, 2000-2007, in US$ millions 82

4.5 Average sources of REC imports in US$ millions, 2000-2007 83

4.6 Average per cent share of import sources between 2000 and 2007 83

4.7 Average per cent trade growth rates, 2000-2007 84

4.8 Exports to and imports from African countries in US$ millions 85

4.9 Intra-African trade by country as average per cent share of GDP, 2000-2007 87

4.10 Africa’s per cent share of total exports based on average exports 1995-2006 91

4.11(a) Africa’s average share in countries’ exports by product, 2000-2007 93

4.11(b) Africa’s average share in countries’ exports by product,, 2000-2007 94

x Assessing Regional Integration in Africa (ARIA IV)

4.12 Africa’s world exports and imports: Average trade figures in US$, 1995-2006 96

Annex 4.1 Intra-REC exports by country in millions of US$ 101

Annex 4.2 Overall direction of exports, 2000-2007, averaged in millions of US$ 105

Annex 4.3 Intra-REC imports by country, 2000-2007 in millions of US$ 109

Annex 4.4(a) African countries’ exports to Africa 113

Annex 4.4(b) African countries’ imports from Africa 115

Annex 4.5 Scope and nature of African countries’ export trade by product groups 117

5.1 Goods traded through ICBT between Ethiopia and neighbours 155

5.2 Aggregate unofficial trade between Kenya and Uganda in 1994 in US$ millions 161

5.3 Uganda’s 2005 estimated exports and imports with its neighbors by country trade balance (in US$ thousands) 161

5.4 Estimated illegal livestock exports from Ethiopia during 9 months, 2007–2008 162

5.5 Working capital in informal trade of agricultural and petroleum products in northern Benin 164

Annex 5.1 HS 4 List of unprocessed products in informal West African trade 182

Annex 5.2 The major artisanal products in West African informal trade 184

Annex 5.3 Non-exhaustive HS4 list of major products for re-export in West Africa 186

Annex 5.4 List of pharmaceutical products traded in the informal sector 189

6.1 Ease of doing business aggregate rankings 207

6.2 Number of days to start a business 208

6.3 Dwell times in major African corridor ports 214

6.4 Estimated composition of operating costs for two-axle trucks (US cents per km) 215

6.5 Delays at selected border posts in Southern Africa 220

6.6 Checkpoints on selected West African highways 222

6.6 COMESA: Reduction of NTBs, performance indicator 232

7.1 Main corridors in Africa 248

7.2 Corridor stakeholders and expectations 260

8.1 Cross-border fees for some African, Asian and Central European countries 284

8.2 Trends in intra-regional exports of selected regions (shown as per cent of total exports) 285

9.1 Relative prices of infrastructure services 299

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9.2 Global competitiveness index (GCI) of Africa 300

9.3 Infrastructure and other basic conditions 300

9.4 Regional distribution of road networks 303

9.5 Regional distribution of TAH network 304

9.6 Status of TAH 304

9.7 Railway network and comparative densities 306

9.8 Air traffic 314

9.9 Seven major African airline destinations, 2008 315

9.10 Runway quality in selected African countries 316

9.11 Percentage of flights between country pairs by airlines that are not based in either country of the pair 317

9.12 Main ICT indicators in 2006 319

9.13 Infrastructure development 321

9.14 Electrification rates in Africa 2005 325

9.15 African regional regulatory bodies 331

9.16 Annual infrastructure financing needs in sub-Saharan Africa, 2005-2015 (US$ billions) 332

9.17 ICA commitments to infrastructure projects in 2007 regional distribution (US$ millions) 333

9.18 Commitments by coordination group members in 2007 334

9.19 Infrastructure expenditures in Sub-Saharan Africa (2007) 335

9.20 Investment value of PPI projects, 2000 – 2006 336

Annex 9.1 Top African container ports – 2004 347

Annex 9.2 Container-handling systems at major ports in the region 348

Annex 9.3 Membership of AFUR, by country 349

Annex 9.4 Airport Facilities in 24 AICD Countries in cities with population of at least 50,000 351

10.1 Level of intra-African trade and total African trade between 2000 and 2006 358

10.2a West & Central Africa: A gravity model 2000-2006 Dependant variable is log of bilateral trade (West & Central Africa: Partners World). 361

10.2b The potential for intra-Africa trade in West and Central Africa(Ratio of actual to potential ratio of regional exports to total exports, in per cent for each country.) 362

10.3a Eastern and Southern Africa: A gravity model 2000-2006Dependant variable is log of bilateral trade (East & Southern Africa: Partners World). 363

xii Assessing Regional Integration in Africa (ARIA IV)

10.3b Actual and potential trade in East and Southern Africa: Model simulation results (Ratio of actual to potential ratio of regional exports to total exports, in per cent for each country.) 364

10.4a Import-export similarity index for Africa using the van Beers and Linnemann approach (COS measure) 368

10.4b Structure of exports and imports in top five product categories by two major potential suppliers (Egypt and South Africa) to other African countries. 370

10.5 Revealed comparative advantage for potential African suppliers 373

10.6 Comparative advantage indicators of African potential versus current suppliers 374

10.7 Indicators of macro and infrastructure in Africa 2000-2005 (average) 378

10.8 Indicators of competitiveness related to trade facilitation for selected countries 382

10.9 Gravity model: All African countries, 2000-2006Dependant variable is log of bilateral trade. 383

10.10 Summary of major supply-side determinants/constraints of African exports 389

Annex 10.1.2 Sample of countries used in the gravity model 394

11.1 Logistics performance index average scores by selected REC 412

11.2 Trade rankings across borders 412

13.1 EU’s share in global trade (per cent) 468