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Regional Integration and Debt in Africa: A Comparative Report of Africa’s Regional Groupings
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3. Intra-REC Trade and Debt
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Despite various initiatives such as the PTA, COMESA, EAC, ECOWAS, UDEAC, UMA, ECCAS, UEMOA, and SADC inter-African trade remains a small proportion of total African trade since African economies maintain traditional roles of being exporters of primary goods to industrialized countries. Although progress has been made in trade liberalization, intra-REC trade is still low at 10.5% and could be higher if informal trade is considered5. High levels of indebtedness and lack of foreign exchange has made it difficult for neighboring states to trade equally within a regional bloc. It has intensified the demand for foreign currency to enable countries to import from outside Africa. For example the obsession with foreign currency has been extended to African countries and their fellow REC members to pay in foreign currency, thereby forcing most of them to trade with the North. Consequently the debt burden in African countries has increased as a result of arrears
Regional integration has been marred by governments pre-occupying themselves with negotiating preferential agreements and compensation arrangements, unwillingness to buy high priced goods from their partners when lower –priced goods are available elsewhere. African Regional integration usually has to battle with unequally strong partners, different levels of commitment to the integration process, with divergent economic, political and/or environmental interest both at government and at private sector levels and with uneven integration speeds. The function of policy making itself has been surrendered to external agencies- the World Bank and International Monetary Fund. Trade; financial and economic policies are not erected on local resource constraints, endowments and opportunities; instead they serve purposes in conflict with local development priorities and human development.
Existing trade patterns reflect strong vertical linkages (developed - developing country) and weak horizontal linkages (between developing countries), which are symptomatic of an unequal global balance of economic power and debt problems. ECCAS and CEMAC of Central Africa are among the RECs with the lowest levels of exports and imports among themselves, having 1.3 percent and 1.1 percent respectively. In the East Africa Community, Kenya is the dominant player, exporting some US$ 435 million (most of it to Uganda) and importing US$ 39 million. Uganda and Tanzania have imports many times in excess of their exports. Kenya enjoys a favourable intra-EAC balance of trade, Tanzania a moderate deficit and Uganda a considerable deficit. Yet, intra-EAC trade is a low proportion of the member countries total trade. For example, most of Uganda’s trade is with the European Union, Kenya being the destination for only 4.6 percent of Uganda’s exports and origin of only 12.4 percent of imports. Similarly, Tanzania’s exports to Kenya account for less than 3 percent and Tanzania takes about 10.2 percent of her total imports from Kenya6.
Africa’s continual dependence on external markets for its primary commodities hinders prospects for intra-trade within their RECs. Inevitably, the net result of unequal exchange between African countries and the north generate debt rather than surplus for the former. Thus, existing trade patterns serve as a vehicle for the systematic transfer of resources, value and wealth from the periphery to the centers, a situation which drives most African countries further into debt as they try to supply the economic needs of their expanding population from a dwindling resource base. The debt crisis in Africa is rooted within the context of unequal relations that underpin and typify capitalist relations of production7.
One would expect that the debt crisis (debt service as a proportion of exports) would be negatively related to the degree of integration. With respect to the EAC, this is true in the case of Tanzania, where the degree of integration is relatively high and the debt service ratio is relatively low (15.5 percent). It also holds true for Uganda where the degree of integration is low and the debt service ratio is high (23.7 percent)8. This is in spite of Uganda’s HIPC status, suggesting that HIPC mechanisms are having minimal impact on debt relief. Total debt has declined in the case of Kenya since the coming of the Community, but has risen in the cases of Tanzania and Uganda, giving a one third impact. Concessional debt ratio, i.e. loans with an original grant element of 25 percent or more has increased in all three countries, indicating winning at the borrowing stakes9. So, all in all, the terms of external borrowing seem to have improved after the coming of regional integration, having a positive impact on debt.
The formalization of regional integration in East Africa saw a marked decline in debt stress, but there are no significant corollary changes in the observed human development trends. Although direct effects on debt can be achieved by regional collective bargaining with donors, the effects of greater integration on socio-economic phenomena and the debt are likely to be indirect. While more productive, efficient and competitive economies earn more foreign exchange to ease the burden of debt servicing, it is prosperity arising from a larger market that will ensure countries have more resources to allocate to social sectors like education and health.
Among the most often cited constraints to greater intra-African trade is the inhospitable macro-economic environment associated with overvalued exchange rates and non-convertible currencies. Currency instability in Africa, as recently witnessed in the Southern African region (Malawi, Zambia and Zimbabwe, for instance) remains a stumbling bloc to the creation of meaningful and fully operational regional blocs and keeps the continent confined to a vicious cycle of indebtedness and underdevelopment.
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Table 1 Intra- Regional Integration Arrangement (RIA) Trade, 1999
(in percentages)
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Regional Integration Arrangement
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Export (to)
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Import (from)
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ECOWAS
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12.1
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11.3
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COMESA
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7.6
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4.3
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ECCAS
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1.3
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2.6
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AMU
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3.0
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3.3
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Source: African Development Bank, Selected Statistics on African Countries 2001, Table 28
Africa’s RECs have little interaction and regionalism is not effectively mainstreamed in member country structural operations. The continent has a problem of overlapping REC membership. Africa has 14 RECs of varying design, 7 of which are considered building blocs. Many members are unable to neither manage effectively nor fund adequately the many RECs that they belong to10. The RECs normally have different approaches of development. Take for instance, there are SADC members affiliated to COMESA and EAC that have conflicting rules or competing obligations and strategies to those of SADC. This results in conflicts within and between member states of each of the RECs.
Some countries get indebted to different RECs as they fail to meet their membership dues and obligations. Over concentration on the choice of institutions needed for integration rather than actually building of the community has tended to weaken the effectiveness of RECs and their relevance11. A regional grouping like SADC for instance was able to source loans for the construction of the Beira and Maputo corridors in Mozambique, but the repayment of the debt incurred through these loans remains Mozambique’s responsibility. SADC acted, as a broker to source the funds but the agreement for funding is bilateral. Such a scenario does not help hasten integration or lessen the debt burden.
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Footnotes:
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UNECA (2002) Annual Report on Integration in Africa (ARIA) Overview, Addis Abba, Ethiopia
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Mureithi Leopold (2002) Regional Integration and Debt in East Africa, A study Report to AFRODAD, Harare.
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Anyang’Nyongo (ed) (1990) Regional Integration in Africa: Unfinished Agenda. African Academy of Sciences, Nairobi.
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Mureithi Leopold (2002) Regional Integration and Debt in East Africa, A study Report to AFRODAD, Harare.
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Ibid
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Adebayo Adejeji (2002) History and Prospects for Regional Integration in Africa. At The Third Meeting of the African Development Forum, UNECA, Addis Ababa, 5 March 2002
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UNECA (2002) Annual Report on Integration in Africa (AIRIA) 2002 Overview, Addis Abba, Ethiopia.
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