Implementation of Regional Integration Programmes at the National Level on Policies, Modalities and Constraints

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5C330

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Distr.; GENERAL

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UNITED NATIONS

E/ECA/CRCI-4/3 17 March 2005

ECONOMIC COMMISSION FOR AFRICA

Original; English Committee on Regional Cooperation and Integration

Fourth Session 24-25 March 2005

Addis Ababa, Ethiopia

Implementation of Regional Integration programmes at the

National level on policies, modalities and constraints

ECAC 339.924

1345

c.2

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i

Distr.: GENERAL

UNITED NATIONS

E/ECA/CRCI-4/3 17 March 2005

ECONOMIC COMMISSION FOR AFRICA

Original; English Committee on Regional Cooperation and Integration

Fourth Session 24-25 March 2005

Addis Ababa, Ethiopia

implementation of Regional Integration programmes at the

National level on policies, modalities and

constraints

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E/ECA/CRCI-4/3 Page 1

Introduction

The discussions and evidence given in Chapter 3 have clearly demonstrated the overlapping nature of African countries membership to RECs and the duplicating character of these RECs actions and programmes. Issues of efficiency and effectiveness of the RECs have emerged as major challenges if the African RECs are to play the role they are expected to play towards the African Economic Community. The RECs efficiency and effectiveness it was concluded could only be achieved if there was coordination and harmonisation of the programmes of the various RECs operating in a given regional space. But more importantly, it is only through rationalisation of the overlapping RECs will the pace at which the Abuja Treaty can be realized be hastened.

Following from the evidence presented in Chapter 3, it is apparent that the RECs are in their current state that lacks dynamism, first and foremost because of the actions and/or inactions of the individual member states. So, a deeper understanding of the RECs situation in Africa and the challenges of rationalisation are only feasible if there is a thorough inquisition of how the regional integration processes are viewed and implemented at the national level. Is it the case that lack of progress in integration in some spheres stem in large part from inaction by member states and lack of consensus building at the national level? Is there adequate internalisation of agreed integration objectives at the national level? Why for instance are there delays in ratification of RECs protocols, hampering timely implementation of decisions? Is it that there is lack of broad- based support for integration at the national level, with civil society and private sector acting largely as spectators and integration issues little part of parliamentary discourse and debate? These are some of the questions that this chapter hopes to address. The chapter therefore surveys how governments organize themselves at the national level to implement their regional agreements.

The chapter relies heavily on evidence collected through the ECA Survey of regional integration carried out in 2004. It is organised as follows in the various sections. Section two discusses the institutional set-up and management of integration schemes at the country level. This section looks at the availability and effectiveness of institutional mechanisms for coordination, implementation and follow-up of regional agreements.

This is then followed by Section three which looks at the translation of REC goals into national plans. Given that some of the RECs programmes and commitments have expenditure implications, this section looks at whether countries integrate them in their fiscal budgets and also whether the RECs spearheaded decisions are taken into account in national programming of economic and social programmes. Section four discusses the implementation record of agreed programmes at the RECs level. The issue of the legislative processes of integration matters is discussed in Section five. As indicated in Chapter three, financing regional integration activities emerged as an important question. Therefore, Section six looks at the issue of fulfilment of financial obligations to the RECs by member states. In Section seven, the view at the national level of the costs and benefits of integration is revisited. The remaining three sections then look at the involvement of civil society, private sector and the public at large in the integration agenda at the national level.

Institutional setup and management of regional integration at national level

Just the same way that coordination among the RECs was raised as an important issue emerging from the overlapping memberships and programmes duplication among most

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of these RECs, so is the issue of coordination with respect to government ministries and departments that are involved with the different RECs. The state and success of regional integration in Africa is determined by the extent to which there exist national and sub-regional capacities that are developed to manage effectively the complex process of integration. Weak national institutions may seriously hamper effective cooperation and integration. In this regard, mechanism for economic cooperation and integration at the national level need to be well equipped and structured to ensure effective implementation of integration measures. In other words, in order to promote effective harmonisation between the activities of the member states at the national level and the policies of the RECs at sub-regional level, there should be a more organised internal arrangement for each country's participation in sub-regional integration initiatives.

What is the situation then at the national level for the African countries? According to the survey undertaken by the ECA in 2004 assessing regional integration in Africa, only 32 percent of African countries indicated to have a dedicated Ministry of Regional Integration. 68 percent indicated affirmatively not to have a ministry in their government structures that deal exclusively with regional integration issues. What these statistics indicate is that in over half of African countries, in spite of all of them being engaged in regional integration, with majority having overlapping memberships, they lack a central point within the government machinery for the coordination of sub-regional economic activities. There is an apparent lack at the national level of a ministry in the RECs member states with the responsibility for coordinating sub-regional integration and economic cooperation matters. The advantage of having a dedicated Ministry for Regional Integration is that technical staff can hone their skills for dealing with integration matters. This would be a good outcome if for instance the staffs manning such a ministry were highly qualified in the first place. And this came out as the case in Africa for those countries that have such ministries. At least 72 percent of the staff in regional integration ministries in countries where they exist has post-graduate training.

However, with respect to professional skills, the economists dominate. Whether this is a good thing with at least 40 percent of the staff in such ministries being economist can be debated, but it could be more of a reflection of the stage of integration initiatives in Africa. Most of the RECs are still at the phase where the demand is more for professional economists rather than other professionals who are more desired at the implementation phases of the RECs programmes.

Figure 4.1 indicates the reasons why there isn't a dedicated ministry within government structures to coordinate regional integration activities in those countries that do not have one. In spite of most African countries belonging to more than one REC, it does come as a surprise that there is no centralised ministry to coordinate integration activities in most of them. The diversity of the policies involved in the integration process is cited by 18 percent of African RECs member states as the reason why they do not have a dedicated ministry on integration. Contrary to expectations, it is not budgetary reasons per se that limit establishment of such a ministry since only 18 percent of the countries indicated budgetary reasons as an important explanation. More than one-quarter of the countries feel that their present mechanisms are satisfactory. In such countries, other ministries act as focal points on regional integration and these are shown in Figure 4.2.

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E/ECA/CRCI-4/3 Page 3

Figure 4.1: Why do African countries lack centralised ministry to coordinate integration

Reasons why some countries do not have a Ministry of Regional Integration

• Diversity of policies requires tasks splitting • Satisfactory current arrangements

• Political choice • Budgetary reasons

• No responses

Source: Economic Commission for Africa, Assessing Regional Integration in Africa Survey

It is worth noting as one looks at Figure 4.2 that in 53 percent of the countries, there is more than one focal point on regional integration issues. This is a result of what is viewed at the national level of the regional integration issues presenting diverse agenda that have to be dealt with through different ministries of government. However, the Ministry of Foreign Affairs appears to be heavily loaded with integration issues as is used by 70 percent of the countries as a focal point on regional integration. This represents somehow the political dimension of the regional integration in Africa. This is in tandem to the finding that political-strategic reasons rather than economics drive memberships to African integration schemes. But as has come out clearly in the discussions in Chapter three, the economics of the integration project in Africa is suffering as countries join multiple schemes for political reasons. But economics also does matter since the Ministry of Trade and Commerce, act as a focal point in at least 47 percent of the countries that lack MoRI. Given the state of RECs and their lack of efficiency and effectiveness, it is imperative that a given a country has a mechanism for the exchange of information and consultation among the ministries indicated in Figure 4.2. Such a mechanism will make it possible to have a clear picture of the areas of cooperation in which the country is involved with its neighbours. This more so the case, since the diversity of issues on regional integration as shown in Figure 4.1 are seen as the main reasons for not having a dedicated integration ministry.

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Figure 4.2: Ministries dealing with regional integration issues where there is no MoRI

M i n i s t r i e s c i t e d a s f o c a l p o i n t f o r c o u n t r i e s w i t h o u t M o R I

i

0 0% 10.0% 20.0% 30.0% 40.0% 50.0% 60 0% 70.0% 80 0%

• Ministry of Foreign Affairs • Ministry of Finance • Ministry of Trade and Commerce

• Ministry of Planning BOthers • No responses

Coordination difficulties are likely to emerge and affect integration efforts negatively, where different ministries act as focal points on different elements of this integration.

These difficulties are likely to be deepened by the problem of overlapping membership.

Therefore, it might be more effective in a country faced with overlapping memberships to RECs at different stages of integration to have a ministry that links the country and hence other ministries with the various RECs. Otherwise, with different focal points on regional integration, inter-ministerial coordinating committees become important, at least at two levels. The technical level involving economic ministries that are frequently involved in the sub-regional cooperation matters. The second level would be a committee composed of ministers of the relevant focal ministries and its objective would be to deal with policy issues and proposals recommended by the technical committee.

But the case for a better institutional mechanism to coordinate integration activities at the national level cannot be gainsaid. In particular, having a ministry that coordinates these activities is likely to lead to better implementation as special attention would be put on different aspects of integration but overseen by a common authority. This is the view that emerges at least in those countries where MoRI is present (see Figure 4.3 showing the main functions of MoRI).

As Figure 4.3 shows, the MoRI serves both as a technical and administrative institution in the government. In all the countries where the ministry exists, it serves the role of effective participation in statutory and technical meetings of the RECs and the AU;

evaluation of regional integration; and reporting. These three roles are certainly critical to a country's coordinated involvement in regional integration. The fact that in at least 83 percent of the countries the ministry serves as the policy organ on integration issues, should be commended since with such a role, it would be easier to coordinate other focal points on integration through policy harmonisation at the national level. Moreover, as argued in later sections of this chapter, the participation of the private sector and the civil society could be improved in Africa, in order to create ownership of integration initiatives. It is therefore informative for those countries that lack a coordinating ministry

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E/ECA/CRC1-4/3 Page 5 on regional integration to note that, where such ministries exist, consensus building and ensuring public support are some of the main functions. The former is the case in about two-thirds of the countries and the latter is the case in over 80 percent of the cases. But probably one of the most important functions that have a lot to do with outcomes in Africa's integration schemes is the organisation and control of implementation of agreements that is undertaken by MoRI in some of the countries. Given the reality of overlapping memberships and the duplication of programmes, having a central focal point that coordinates implementation of agreements should be taken as a major function. Therefore, if just for coordination of the implementation, a central focal point that is also close to the policy formulation processes should be recommended.

Figure 4.3: Main functions of the Ministry of Regional Integration in African countries

MoRI main functions

| Bother

• human resource development

• Resource mobilisation

;

• Forward planning and problem solving

! • policy making

• Effective participation in statutory and technical meetings of RECs and the AU

• Ensuring public support

• Consensus building at national level

• Reporting

• Organisation and control of implementation of ; agreements

• Evaluation

• Monitoring

Source: Economic Commission for Africa, Assessing Regional Integration in Africa Survey

The effectiveness of a Ministry of Regional Integration would however be as good as the kind of support it receives given competing national priorities. As indicated with respect to staffing, MoRI requires to have well trained professionals. But if the operational budget or the morale of the professionals working in the area (as proxied by salaries) is low. the results are not likely to be any better than in a country where there is no such a ministry. And here a problem lurks in many African countries. This is because, compared to other ministries, the MoRI receives a lower budget than the others as was reported to be the case in 57 percent of the countries. It is only in 17 percent of the cases is such a ministry funded at budget levels that are higher than the rest of the ministries.

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Translation of RECs goals into national plans and budgets in national programming National development plans and the budgets to realise these plans are important instruments through which RECs goals can be actualised at the national level. The translation of the RECs goals through the national programming of these goals into the national plans and budgets is an important interface between the individual country and the RECs. If this interface were weak or inadequate, it would certainly affect the implementation of the commonly agreed regional objectives and plans at national level.

Member states of the different RECs appear to have inadequacies that stem from deficient national mechanisms for translating RECs treaty obligations and commitments into national plans and budgets. In deed, a myriad of constraints were found to exist that make it difficult for these countries to translate the RECs goals into actionable programmes and projects in their national plans and budgets. Figure 4.4 shows the frequency with which certain constraints to translating RECs goals into national budgets were cited by member states.

Figure 4.4: Constraining factors to translation of RECs goals in national budgets

Constraints to translating RECs goals in national budget (% of countries citing constraint)

0% 10% 20% 30% 40% 50% 60% 70% 80%

• No responses

• Other

• Lack of capacity (professionals)

• Regulations

• long negotiation process

• Lack of resources

• Enacting laws

Lack of resources emerged as the main constraint to the translation of the RECs agenda through national budgets. While it is not evident in the figure, overlapping membership, which leads to many demands for implementation at the same time, is a possible reason why lack of resources was frequently mentioned. It is also evident that long RECs negotiation processes are a constraint at the national level to implementation through the budget. 24 percent of the RECs saw this as an issue. Given that negotiations on trade protocols dominate the RECs in Africa as already seen, again the possibility of the overlapping membership and duplication of the programmes, could be the major culprits as to why the negotiations are protracted hence leading to lack of synchronization of implementation with the budget cycle. The same constraints emerged with respect to integrating RECs goals into national programmes (see Figure 4.5).

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E/ECA/CRCI-4/3 Page 7 Figure 4.5: Constraints facing countries in translating RECs goals into national programmes and plans

C onstraints faced in incorporating RFC goals into national programmes and plans

0% 10% 20% 30% 40% 50% 60% 70% 80%

• Enacting laws • Lack of resources • long negotiation process

• Regulations • Lack of capacity (professionals) •Other

• no responses

Close to three-quarters of the countries found it difficult to integrate RECs goals into their programmes because of lack of resources. But unlike in the case of translation of the goals through the budgets, capacity constraints, long negotiation process, and enacting laws were cited more frequently as constraints in integrating the RECs agenda into national programmes. These constraints are certainly multiplicative depending on how many RECs a particular country belongs to. Consequently, overlapping membership and duplication could likely be the cause of the present ineffective nature of RECs vis-ä-vis their role as building blocks of the African Economic Community as they magnify the constraints indicated in Figures 4.4 and 4.5 being experienced at the national level by member states.

The picture depicted by the two figures above suggests that in most of the African countries, regional cooperation does not go far beyond signing of treaties and protocols.

The objectives of the treaties are not integrated at the right time and with the requisite commitment in national development plans or in the sectoral programmes of appropriate substantive ministries. It might also be argued at this point that the inability to translate RECs goals into budgets and national plans in spite of the constraints cited could be attributed to lack of commitment to integration. African political leaders are key figures in cooperation and integration. Because post-independence regional cooperation has its roots in political interests, a fact confirmed in Chapter three, rather than economic rationale, measures agreed in regional fora are rarely incorporated in national policies and plans. It is their decisions and commitment to succeed, which determine the internalisation of RECs goals into budgets and plans, resources constraints notwithstanding. Where the political commitment exists, it might be easier for the particular member state to draw up its national development plans, strategies and programmes with regional considerations and with the regional market as the point of reference.

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Implementation record of agreed programmes at the national level

Whereas rationalizing the institutional setting is an important but not sufficient condition for the success of Africa's integration, it is the member states and governments, who are the primary stakeholders of the integration process, that have an important role to play in ensuring the implementation of commonly agreed policies at the national level. They need to play their individual part by ensuring that there is much stronger congruence between actions and commitments, between plans and outcomes. Thus, they would be seen as fulfilling their respective commitments and obligations towards the construction of the integration edifice. But it has already been shown that implementation of regional integration agreements is generally weak at the national level as very few countries have established effective mechanisms to promote actions to this end.

The preceding section has illustrated the constraints that member states cite as limiting their ability to translate RECs goals into national plans and budgets. Several reasons, including lack of capacity and resources at the national level it emerges account for weak national commitments to and implementation of regional policies and strategies. In this section, this issue is pursued further and the focus is shifted towards the implementation record of regional programmes.

One of the projects in which almost all the RECs are involved in at the continental level is the Trans-African Highway. The member states under the coordination of the RECs are expected to integrate into their national investment programmes the construction of the links of the Trans-African Highway that pass through their borders. The highway therefore provides one useful project whose implementation record at the national level can indicate the ability of the member states to realize RECs goals and by extension the African Economic Community objective of seamless intra-African trade transport corridor. In spite of the importance of this corridor, only 16 percent of African countries have completed the links of the highway that pass through their borders. 68 percent of the sample surveyed indicated that they have not completed their Trans-African Highway links. The reasons invoked as to why more than half of the countries have not completed their links are shown in Figure 4.6. While it is not surprising that lack of resources dominate as the main explanation, problems between neighbouring countries and security/political reasons were also cited as important reasons.

The implementation of agreements under the trade protocols is also a good indicator of the determining factors of the current RECs situation. To reiterate the point, while rationalising the institutional set-up of the integration organs is important, it is equally essential to examine the interface between regional agreements and national policies because commitment and action at the national level are a sine-qua-non condition for successful integration in general. Figure 4.7 provides a very clear picture of the implementation record of various elements of agreed trade policies at the national level as reported by member states belonging to different RECs all over the continent.

Evidently, in the case of agreed trade policies, a lot remains to be done at the national level.

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E/ECA/CRC1-4/3 Page 9 Figure 4.6: Constraints faced by member states in completing their links to the Trans-

African Highway

R e a s o n s i n v o k e d f o r n o t c o m p l e t i n g t h e m i s s i n g l i n k s o f t h e T r a n s - A f r i c a n H i g h w a y

not applicable (island) No response On progress lack of absorbtion capacity lack of coordination at regional level problem with neighbouring country(ies)

security/political reasons Lack of resources

0% 10% 20% 30% 40% 50% 60%

Source; Economic Commission for Africa, Assessing Regional Integration in Africa Survey

Take the case of tariff reduction, an important element of the preferential trade regimes accorded to RECs member states. Only 28 percent of countries reported to have completed what had been agreed in the RECs that they belong to. This low rate of performance does not portend good progress for Africa's integration project. Up to 32 percent of the countries are still implementing tariff reductions that are supposed to be completed by now, an indication of a lagging integration agenda that is being slowed down by the actions at the national level. The same lethargy is evident with respect to non-tariff barriers, which have been found to be major impediments to increasing intra- African trade. Only slightly under one-third of the countries as of 2004 reported to have eliminated non-tariff barriers that impede intra-REC trade in their jurisdiction.

There is progress however in the area of harmonisation of customs documentation and nomenclature as more than half of the countries indicated to have completed the required harmonisation. This means that if other non-tariff barriers could be addressed quickly, there is scope for the trade facilitation within the RECs to be elevated to a higher plane. The implementation of the common external tariff where application is also encouraging, with a good proportion of the countries moving in the right direction where a common external tariff has been agreed.

The two programmes discussed so far-the Trans-African Highway and the trade policies-tend to have implications on resource needs and also sovereignty over fiscal policy, in particular the revenue mobilisation for the latter. Otherwise, the record of implementation of elements of the treaties that do not have budgetary implications and immediate sovereignty questions is better. For instance, with respect to agreed macroeconomic targets at the regional level, 80 percent of the countries indicated that they are actively pursuing the set regional targets of inflation and budget deficit. And even for debl/GDP ration and interest rates, at least 45 percent of the countries indicated their policies are driven by what has been agreed on at the RECs level.

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Figure 4.7; Status of implementation of trade policies at national level

Status of implementation of trade policies at national level

100%

0%

tariff reduction NTB reduction Harmonization of Common external customs tariff if applicable documentation and

nomenclature

• completed B ongoing • status of implementation different according to which REC Qnot applicable Bno response

Source: Economic Commission for Africa, Assessing Regional Integration in Africa Survey

Obstacles to movement of persons across borders intra-RECs are also being addressed in a more positive way. A clear determined effort emerges with respect to the facilitation of movement of persons. 90 percent of countries have abolished entry visas for all/some RECs members. Same duration of stay in the country has also been harmonised in 85 percent of the countries. But an important area of progress is the granting of right of establishment to nationals of RECs member states. 65 percent of countries have opened up in favour of right of establishment for the citizens of countries of concerned RECs and in 55 percent of the countries, a common REC passport has been adopted and recognised at the national level. It is important to note that in the case of the right of establishment, it does not apply to all partner countries in a REC. A selective and discriminating approach is taken at national level when it comes to implementation of the right of establishment, a reality that is not easily visible in the statistics cited here.

The legislative processes for integration matters at the national level

All the regional economic communities have protocols (also known as Conventions or Acts) laying out the practical steps for implementing their treaties. The treaties merely set out broad areas of agreement and general objectives, principals and commitments, making it necessary to have important implementing instruments. This is where the protocols fit in. As protocols are needed to put treaties into effect, it becomes a matter of concern if member states in a given REC fail to sign or ratify them or even submit their ratified instruments in a timely fashion as this then affects the pace of implementation of agreed programmes. Ordinarily, protocols take a long time to conclude as lengthy negotiation processes are involved. When this lengthy process is coupled with delays in signing and ratification, it becomes difficult for the RECs to adhere to the provisions of their treaties. For instance, a treaty might provide for a REC to reach a stage of a free trade area by a certain date. But negotiations on the trade protocol may take so long

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E/ECA/CRCI-4/3 Page 11 that it may not even be signed by the target date. Thus many—and perhaps all—trade liberalisation schemes in Africa had to be rescheduled1 at one time or the other.

Table 4.1 overleaf gives a summary of the common cited important protocols by the member states belonging to the various RECs. As expected, more than three-quarters of the countries cite the protocol on trade as the most important. This is followed by the protocols dealing with the twin issues of transport and communications, in which 72 percent of the countries considered them as important protocols in the context of regional integration in Africa.

Table 4.1: Important protocols for RECs treaties as cited by African countries

Protocol Frequency of citation as being important

Trade 80

Transport 72

Communication 72

Peace and security 64

Free movement of goods/services/ facton 60

Energy 60

Agriculture 60

Macroeconomic policy convergence 56

Industry 52

Other 4

It is clear from Table 4.1 then that there is consensus among the African states of the importance of regional integration and the support for regionally driven programmes is strong. They also recognize the role that regional integration can play in peace and security as two-thirds of the countries indicated that a protocol in that area is important.

Broadly speaking then, one would expect strong actions at the national level given the conviction indicated concerning the protocols. Might it be then that failure for older integration initiatives to help a timely realization of the expected gains from the above protocols explain the overlapping membership and duplication raised as a negative attribute in Chapter three? Since these protocols are found to be important, it is possible that countries try to achieve their expected gains by joining different RECs on the realization that different RECs show competency and ambition in a few protocols as opposed to excellence in all. In which case, there is a strong case for rationalisation especially if such a process would lead to more focused and orderly integration institutions.

Even if multiple membership could be seen as a diversification of the hedge against risk of failure in one or more integration initiatives compared to other similar schemes that a country might be party to, the speed of ratification of the protocols is still an issue.

Firstly, it is important to note that, only in four percent of the African countries surveyed where it was stated that ratification of treaties and protocols is not an absolute necessity. Evidence obtained at the national level indicate different mechanisms of

' Under the concept of variable geometry discussed in Chapter three, it has become fashionable to have slow integrators" and "fast integrators" cohabiting in a REC for as long as they are signatories to the treaty but with the former lagging behind in the ratification and implementation of protocols such as in trade.

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ratification of international agreements which could be a contributing factor to the speed with which treaties objectives are realized, besides political commitment being a key determinant. In 52 percent of the cases, the legislature (parliament) solely ratifies treaties and protocols. Depending on the way in which the time-table and agenda (calendar) of the parliament is set, it is possible that ratifications under multiple memberships cannot be coordinated even for those countries in which it takes only the legislative arm of government. In 12 percent of the cases, both the parliament and the Head of State have to ratify the treaty or protocol. The process is likely to take some time here just like in the case of parliament alone unless there is a definite mechanism that fast-tracks treaties and protocols within the order of business of the parliament. In some countries, 12 percent of the cases, the Cabinet alone is sufficient to ratify protocols. The expectation here would be that once the legislative arm ratifies a treaty, future negotiated protocols would not necessarily have to be taken to parliament, with the Executive Arm of government being sufficient to make them binding. Table 4.2 shows the time it takes countries to ratify treaties and protocols.

Table 4.2: Period it takes member states to ratify RECs treaties and protocols Period it takes to ratify treaty and/or protocol Percent of countries

< 3 months 16

3 - 6 m o n t h s 4

12 months 24

Variable 28

Other 4

No response 24

It is only in 16 percent of the cases that the ratification process takes less than three months. In most countries, the process takes up to one year. There is also variability of this period in at least 28 percent of the countries. The implication of this is that coordination in implementation of protocols become difficult. It would be more helpful if in the rationalisation process of the RECs, the issue of ratification of any remaining protocols were harmonized. Otherwise, the question of delay will not be avoided.

Several problems were also identified as facing countries in the ratification process. In just over half of the countries, the lengthy negotiation process emerged clearly as a constraint to the ratification process. Only four percent of the countries indicated that irrelevance of treaties and protocols was a problem to the ratification. Lack of expertise, possibly in translating treaties and protocols into national laws was cited by 20 percent of the countries as a concern.

What can be drawn from the above statistics and discussion is that there are costly delays in the signing and ratifying of regional agreements. These delays contribute to a loss of momentum in integration. Even though it has not come out from the survey, the uneven interest in provisions of protocols on the basis of possible benefits and costs, could be contributing to the delays in the African integration at the RECs level, occasioned at the national level. Some countries, such as small islands countries may understandably show little eagerness, to join their partners in signing and implementing certain protocols on rail, road or inland water transport. And in some cases, especially where political consideration rather than economic drive memberships, countries may

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E/ECA/CRCI-4/3 Page 13 sign protocols to show their commitment, but with no intention to ratify them because they stand to gain little, or even to lose. So, if protocols are not prepared in such a way that they consider the concerns and interests of all parties, the integration programmes might end up being delayed by those countries that perceive themselves as potential losers.

Fulfilling financial obligations to the RECs at national level

Financing regional integration in Africa has remained a key challenge to the continent's efforts to realize the African Economic Community. In deed, if the African Union is to make decisive difference through the AEC, then key institutions foreseen in its Constitutive Act such as Peace and Security Council, the African Investment Bank and the African Parliament must become not only operational but also effective and sustainable. This requires a holistic financing strategy to be put in place that takes into account the short-, medium-, and long-term financing needs of the African Union, the RECs and other ancillary entities and technical arms. In this section, attention is focused on the national level capacities to finance RECs. The motivation being that, if RECs were well financed and as a result efficient and effective, then it would be easier to up the pace towards the AEC.

The first issue then in this regard is to see how individual countries have been fairing in meeting their obligations to the RECs. As indicated in Chapter three, payment of contributions by the member states to the RECs stood at 68.5 percent as of 2003. This clearly indicated that there is a gap between the RECs' needs and the members' contributions. This for most RECs necessitated recourse to external sources of financing as shown in Figure 4.7. The figure shows the proportion of RECs that receive support from external sources and the kind of external support they are receiving. This financing gap that necessitates the external support or downscaling of programmes depends largely on the multiplicity of a RECs membership. So, unless the integration institutions and programmes are rationalised, the problem will remain of the RECs trying to cope with ambitious mandate entrusted to them by their treaties and protocols, which will inevitably continue to result in an unhealthy financial situation.

Figure 4.8; Proportion of RECs receiving external support and type of support received

S u p p o r t R e c e i v e d f r o m E x t e r n a l S o u r c e s

Technical Assistance

28%

Extra-Budgetary 24%

Expertise 24%

Support to Specific Initiatives

2 1 %

No External support 3%

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The need for external support can be linked to the finding that only 64 percent of member states met their financial obligations to the RECs they were members of over the last 3 years. 36 percent of the countries are unable to meet their obligations. As a result, it is not a surprise then that assessed contributions have continued to fail to meet the financing needs of the RECs. The performance of different countries with respect to their fulfilment of the contributions obligations varies across RECs. For ECOWAS for instance, 88 percent of its member countries indicated that they are up-to-date with their assessed contributions. In the case of SADC, of the responding countries that belong to this particular REC, there was a 100 percent performance in terms of contribution. The same level of performance was found in the case of UEMOA and UMA. However, for COMESA, only 50 percent of the countries indicated to be up-to-date with their assessed contributions on average over the last three years. Figure 4.9 indicates the performance of member states in selected RECs. Like in the case of SADC, UMA and UEMOA, the EAC and IOC member countries indicated being up-to-date with their contributions. Financing gap exists however for member countries to ECCAS and IGAD.

In the case of CEPGL and MRU, all the responding countries in the sample indicated they were not current with their assessed contributions.

Figure 4.9: Countries reporting to have fulfilled their financial obligations in selected REC:

Percent of countries declaring to have paid their assessed contributions in full in selected RECs

CEMAC ECCAS IGAD CEPGL EAC IOC MRU

• % Yes H % No • % no responses I . . ... . I

Why then do countries join RECs but fail to meet their financial obligations? This is an important question because it leads one to ask whether rationalisation could be carried out in the first place by establishing the level of commitment on the basis of currency in meeting the financial obligations. Several reasons have been advanced as to why countries are unable to meet their obligations. Table 4.3 reports the frequency with which reasons were cited by member states as to why they are not current with their contributions. Majority of countries cited limited resources at the national level as the main reason for arrears. This could indirectly indicate that the RECs programmes are not viewed as a priority in the context of national budget. This explanation links directly with the earlier observation that for most of the RECs, there is a problem in the programming of RECs activities into the national plans and the budgets. Overlapping

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E/ECA/CRCI-4/3 Page 15 membership also emerge as a contributing factor to the arrears. 33 percent of the countries supported the observation that overlapping membership could be undermining the effectiveness of the RECs, as there is lack of support at the national level as the burden is felt directly when it comes to supporting the RECs activities.

TabIe 4.3: Factors cited to explain arrears to RECs financial obligations (frequency) Factor cited explaining arrears Frequency (%)

Too many RECs to support 33 Lack of budget allocation 78 Lack of relevance of REC activities 11 Greater costs than gains 11

Other 33

While individual countries that are unable to meet their financial obligations gave their reasons for arrears, means of improving the contributions position have been one area of focus in finding ways to make RECs more effective. As a result, the ECA survey inquired into the mode of assessment for financial obligations countries found most favourable among the member states of RECs. This was occasioned by the responses that indicated that there are some countries that thought the costs were higher than the benefits for instance. The assessment method that is based on equal contributions appeared to be most unpopular with member states. Only eight percent of the countries were in support of this mode of assessment. Two-thirds of the RECs supported the mode of assessment that was based on a percentage of GDP. This came out strongly as the most preferred mode of assessment for contributions. 28 percent of the countries entertained the idea of other modes besides the equal contribution and a proportion of GDP to be explored. A further investigation into possible modes of financing integration at the RECs level in member states view brought out support for a community levy on third countries imports irrespective of whether an FTA or customs union was in place (see Table 4.4).

TabIe 4.4: Member countries cited other possible means for financing RECs (frequency) Other possible means of financing RECs Frequency (%)

Airport tax 20

Specific allocation from GDP 20 Community levy on imports from third coi 56

Others 16

No response 20

Table 4.4 confirms an emerging trend among the African RECs of late. To put themselves on a sounder financial footing, some RECs—UEMOA, ECOWAS, CEMAC, SADC, COMESA and ECCAS-have been exploring alternative means of financing based on a levy on imports from third countries. UEMOA has already put the scheme into operation. ECOWAS and CEMAC have it partly in place. The prime objective is to make the economic integration process more financially solid and the RECs less dependent on member states' coffers and external sources for their operations. The mechanisms aims at mobilising more substantial and regular resources that would cover: regular budgets of the secretariats of the RECs; compensatory mechanisms where they exist or are contemplated; regional projects, programmes and related studies; and regional development funds among other things.

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Costs and benefits of integration: national level view

One of the reasons cited by some African States as to why they are unable to meet their obligations to the RECs they are members of is their perceptions that the costs are higher than the benefits. These perceptions it must be admitted are not surprising in that, in general, countries join integration groups without a clear knowledge of the potential gains and losses from affiliation to the group. As earlier shown in Figure 3.1 in the previous chapter, there are several valid reasons why countries become members of regional groupings. Top among those reasons included, political/strategic and economic reasons in that order. But it needs to be accepted that most African countries are low- income countries and have small populations. This smallness constitutes a major limitation to economic expansion. Their production structures are weak, constrained by a variety of inadequacies. Given the small size of African national markets, regional integration is accepted as a necessary strategy for generating faster growth and development overcoming the smallness in production, investment and trade. Integration thus is an investment. But there are costs that must be borne. In this section, the survey evidence of expected costs and benefits of regional integration at the national level is presented and discussed. This evidence is useful in that it will assist in any rationalisation schemes to indicate the concerns that need to be addressed to win support to the membership of recommended rationalised groupings.

Potential benefits of integration

In theory, the potential benefits of regional integration arise from two broad sources in the case of Africa, namely, the potential scale and competition benefits. Small markets constrain the number and scale of firms or projects that can be sustained, hindering competition among firms and the development of scale economies. Through regional integration, domestic African markets get combined, enabling firms to expand, and markets to be more competitive. More competition and the increased possibility of bankruptcy induce firms to eliminate internal inefficiencies and raise productivity.

Regional integration arrangements can also increase investment in these African countries forming larger markets since it reduces distortions, enlarges markets, and enhances the credibility of economic and political reforms. The results can raise the returns to investments; make larger (and lumpier) investments more feasible. In addition, in cases of regional arrangements that embrace and implement customs unions, environments in such RECs encourage foreign investors to engage in tariff jumping-that is, investing in one member country in order to trade freely with all members-leading to expansion of investments by both domestic and foreign investors.

And as theoretical and empirical literature argue, such investments, especially the foreign type, can induce knowledge and technology transfers and spillovers, raising productivity which has remained the bane for most African economies.

How many African countries, given the uncertainty of gains proposed by theory have undertaken cost-benefit analysis studies of their integration schemes? Only 28 percent have done so as of 2004. The rest of the countries surveyed have not carried out any studies to determine the possible gains or costs of integration. In the case of those that have undertaken these studies, the main findings have come up with some important findings that can help focus debate and policy actions at the national level. Figure 4.10 presents a summary of the keys findings of the cost and benefit analysis studies in the sample of countries that indicated to have carried out such studies. In 42 percent of the

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E/ECA/CRC1-4/3 Page 17 countries, the conclusion has been that regional integration portends net long-term gains for the country. Only eight percent of the countries concluded that they are likely to experience net long-term costs from the integration projects. The key findings in Figure 4.10 are clearly in support of the integration activities in the continent. These findings are also useful in the sense that they do influence decisions concerning the RECs dramatically at the national level (see Table 4.5).

Figure 4.10: Key findings from national cost-benefit analysis studies

M a i n f i n d i n g s a m o n g c o u n t r i e s t h a t h a v e u n d e r t a k e n c o s t - b e n e f i t a n a l y s i s o f R E C s m e m b e r s h i p ( % )

0 0 5.0 10.0 15.0 20.0 25 0 30.0 35.0 40 0 45.0

Findings from the cost-benefit analysis studies were indicated to be influential in more than 60 percent of the cases on national level policies such as membership and also to have significant influence on the degree of commitment shown towards a given REC by the government. Looking at Figure 4.10, there is really no danger to the regional integration schemes in Africa facing hostile policy reactions in the sense that at least in countries that have undertaken cost-benefit analysis, the findings are in favour of supporting measures to make the RECs work due to anticipated net long-term gains.

Table 4.5: Potential impacts of findings of cost-benefit analysis studies at national level How influential cost-benefit analysis findings are at national le Percent

Can affect policies, even membership 32

Could influence degree of commitment 32

Does not know 4

Not influential 4

No response 31

The fact that findings from the cost-benefit analysis studies could potentially impact the outcomes of regional integration in the continent, underscores the need for the 72 percent of the countries that have not undertaken them to do so. Incidentally, it is not lack of interest that countries have not completed such studies. Several factors were advanced at the national level as to why these studies have not been done. The main reason cited by at least 47 percent of such countries are financial constraints. Another

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21 percent of the countries indicated human resources constraints as an impediment.

But there is a sizeable portion of African countries (27 percent) that felt that they had no mandate to do so. This means that the RECs leaderships could easily spearhead some positive actions by granting the mandates.

Besides the benefits that have been indicated so far from regional integration that can be uncovered at national level through national studies, there are others that may not be easily apparent. Regional integration can enhance the credibility and the continuity of economic and political reforms in member countries given that regional arrangements function as collective agencies of restraint, providing frameworks for coordinating policies and regulations. Firstly, as part of integration, countries are often required to update and improve their legislative and regulatory frameworks. Second, adhering to specific macroeconomic convergence criteria and forcing countries to create a macroeconomic environment supportive of international competition facilitates sound economic outcomes such as low inflation, low deficits, and stable exchange rates.

Deciding to participate in regional integration can therefore increase the credibility of a government's commitment to macroeconomic stabilisation, with additional spillovers to growth. One might ask then, what has been the outcome with respect to some of these benefits at the national level in the case of Africa. Figure 4.10 provides results in terms of benefits received as a result of coordinated macroeconomic policies.

Figure 4.11: Benefits at national level of RECs sponsored macroeconomic policies

Benefits of implementing macroeconomic policy programmes at national level

• Controlled inflation

• Reduced budget deficit

• Reduced debt/GDP ratio

• Stable exchange rate

• Increased investments

• Stable interest rate

• Other

• no responses

It is clear that many African countries are reporting benefits from regionally coordinated macroeconomic policies. 56 percent report regional coordination and targeting have helped them to control inflation. Moreover, the two twin problems that have been a plague to African economies were reported by nearly half of the countries as having been brought under control as a result of the influence of REC level agreements. These

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E/ECA/CRCI-4/3 Page 19 are ensuring sound budget deficit positions and stable exchange rates. A more important benefit that is reported at the national level by 44 percent of the RECs member states is the association of increased investments to regionally coordinated macroeconomic policies. Success was also reported by at least 40 percent of the African countries in the areas of control over public debt and also attainment of realistic domestic interest rates. The benefits realised from implementation of RECs coordinated programmes in other areas are shown in Table 4.6.

Table 4.6: Benefits realised from implementing RECs programmes (frequency) Benefit realised from implementation of REC coordinated .. frequency

Implementation of trade and market integration increased exports

Increased imports

Enhanced customs procedures Others

Transport programmes

Enhanced traffic flows 60

Reduced transaction costs 40

Better physical connectivity with other countries 56

Enhanced cross-border movements 76

Energy programmes

Enhanced energy supplies

Enhanced energy consumption Improved reliability

Other

Food and agriculture programmes

Increased food security 36

Improved trade in food 48

Improved early warning systems 28

Improved agriculture output 24

Other 4

50 56 54 20

44 24 28 4

In the area of trade and market integration, the programme that is prominent in most African RECs, expected benefits were reported in most of the countries. In the area of trade, close to two-thirds of the countries indicated that they have experienced increased exports as a result of the implementation of the trade and market integration.

Similarly, 56 percent of the countries associated increased imports to the implementation of the trade and market integration policies sanctioned by their respective RECs. Apart from the growth in real trade, about two-thirds of the countries have found the RECs programmes in trade and market integration as playing a positive role in the enhancement of customs procedures. It is also apparent in Table 4.6 that benefits of regional integration have also been accruing in the transport programmes.

The most significant achievement has been in the area of enhanced cross-border movements with 76 percent of the countries indicating that there has been progress in this area. Enhanced traffic flow is another aspect that most countries felt there have been achievements. Coupling enhanced customs procedures from implementation of trade and market integration and enhanced traffic flows and enhanced cross-border movements from the transport programmes build a picture of improvements from trade facilitation mechanisms intra-RECs. This is yet more evidence of the positive attributes

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of regional integration. But there is need to ask, why is it that the realised benefits are not spread across all countries and in all areas as would be expected? For instance, in the area of energy programmes, apart from the enhanced energy supplies reported by just under half of the countries, many countries did not indicate improved performance in terms of consumption and reliance. Similarly, in agriculture, while there could have been some improved trade in food as reported in about half of the countries, benefits in the areas of increased food security, early warning systems and agriculture output, have not been realised in more than half of the countries. The outcome of realised benefits on average is reported in Figure 4.12.

Figure 4.12: Countries reporting benefits from regional integration programmes (%)

Proportion of countries reporting benefits in specific programmes

• Trade and market integration • Macroeconomic policy convergence • Transport

• Energy • Agriculture and food security

Results reported in Figure 4.12 show that a lot still needs to be done. On a weighted basis, only half of the countries indicated that they have realised benefits in the trade and market integration programmes. Slightly under half of the countries reported gains as a result of transport programmes. But in the areas of macroeconomic policy convergence, energy and agriculture and food security, majority of countries do not feel significant benefits associated with regional integration initiatives in these areas.

Essentially then, Figure 4.12 seems to suggest that for most countries, regionally coordinated programmes, especially in the real sectors have not borne the expected benefits. On average then, this performance is clearly below average and questions must be raised why is it that the expected pace of gains has not been realised. Again, it boils somehow to the issue of overlapping memberships and duplication. Could it be that overlapping memberships and the problems associated with it that have been enumerated so far hamper the effectiveness of the above programmes? The fact that these programmes are active in different RECs and require resources could also be a good explanation as to why the performance has been below average in most cases.

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E/ECA/CRCI-4/3 Page 21 Figure 4.12 does raise important concerns for Africa's integration projects in that, countries especially small and low income ones, should in efficient and effective regional trading arrangements benefit from cooperation—especially through resource pooling-to promote regional public goods. Ideally, a regional integration arrangement promotes cooperation in two main ways. First, such arrangements are expected to provide a framework for cooperation on resources (such as rivers, road and rail links, and electricity grids) or problems (such as pollution or transport bottlenecks) shared by members. Embedding regional cooperation in integration arrangements help to boost enforceability. But as indicated in Figure 4.12, the regional public goods benefits have been realised or at least acknowledged in far much less than half of the African countries participating in RECs. One of the likely explanations as alluded above is the overlapping memberships and duplicating problems. Second, the regular contact and collaboration among policymakers that regional integration arrangements generate can enhance rapport and trust, facilitating cooperation in areas not explicitly covered by an agreement.

In concluding the evidence related to benefits from RECs coordinated programmes, it is worth mentioning that in situations where these institutions are efficient and effective, regional integration could also help reduce the risk of conflict in two ways. First, increasing interdependence among members makes conflict more costly. Second, regular political contact among members can build trust and facilitate cooperation, including on security, in a continent whose development has been limited by conflict in some areas. Security arrangements and conflict resolution mechanisms have become integral components of regional integration arrangements. But as seen from the summarised evidence in Figure 4.12, the magnitude of potential benefits that accrues to a particular regional grouping depends on the depth of integration, in terms of removing protection and other barriers created by border and behind the borders frictions, including red tape at national borders and differences in national product standards.

Thus, it also depends on the level of commitment and trust that is built among the member states. The performance in Africa, in terms of benefits realised, while positive, is yet to be optimised.

The potential costs of integration

It is clear both in theory and practice that there are potential benefits to integration. But integration also entails some costs as well. From the international trade theory perspective, trade diversion—the displacement of lower-cost production from non- members by higher-cost production from partner countries due to reduced barriers within regional integration arrangements—is one of the recognised costs of integration.

Regional integration arrangements generate welfare gains if trade creation dominates trade diversion, and this outcome cannot be determined a priori. Nonetheless, debate still remains whether "bilateralism and regionalism" are bad for general economic welfare and the global trading system. Some have argued that this issue borders on three other issues: whether existing bilateral and regional liberalization efforts harm living standards in participating or non-participating countries r' Whether bilateralism and regionalism has harmed world's trading system and hindered multilateral trade liberalization? In particular, whether bilateralism and regionalism are likely to damage the global trade system in the future? Some argue that almost all empirical studies of European and North American regional arrangements find positive impacts on