Regional Economic Communities: Rationalisation Scenarios

Published on 6th September 2011

The study for the quantification of the RECs rationalization scenarios was conducted on the basis of AU policy guidelines, the surveys conducted in that context and the discussions held between the study experts and the chief executives of the eight (8) RECs recognized by the African Union (AU).

The quantification was carried out in two stages: the first helped to give a more concrete content to the scenarios identified by AU, ascertain their feasibility and deduce therefrom a membership configuration. The second stage of the study was devoted to an appraisal of the impact of each scenario on key macro-economic variables. The exploratory work regarding the feasibility of the scenarios resulted in the formulation of the following proposals:

• With regard to regional membership of each African country and the possibilities of rationalization, the main observation is that the search for “optimal attachment” does not mean that the State concerned should leave any of the RECs in the event of multiple memberships. As a matter of fact, cooperation between the RECs take numerous forms, ranging from the problems of border security to economic and monetary, and indeed political union, all of which allow for the co-existence of regional communities that have different vocations. Thus, rather than renounce any of the RECs, the problems likely to be generated by multiple memberships can the resolved:

(i) Either by the co-existence of the RECs with distinct and/or complementary vocations seeking to harmonize their policies – the case, for example, of ECOWAS and CEN-SAD or, indeed, of IGAD

(ii) Or through the emergence of initiatives aimed at bringing together the RECs, as is the case of Tripartite. This initiative in fact constitutes an original response which, if successful, can be adapted to address the issue of rationality of the on-going regional integration processes and their convergence towards the Abuja Treaty; hence the strong focus on this initiative in the reflection carried out in this study;

(iii) Or by membership of several RECs with the choice of an anchorage community.

As regards the relevance and viability of the various rationalization scenarios formulated by the different works that precede this study:

• the analysis culminated in the identification of four (4) scenarios, subject of the quantification exercise, namely:

(i) The “status quo” scenario whereby the on-going processes are to be pursued, while maintaining the multiple membership of RECs,

(ii) The “Abuja Treaty” scenario – Option 1, which envisages the delineation of States’ memberships in accordance with the five regions defined in OAU Council of Ministers Resolution CM/464 (XXVI),

(iii) The “Abuja Treaty” scenario – Option 2, or “anchorage communities” which in envisaging the formation of the five identified regions, gives a more flexible interpretation to the text,

(iv) The accelerated convergence scenario with envisages the association of RECs in supra-regional entities, drawing from the Tripartite constituted by SADC, EAC and COMESA.

It will be seen that the “Political Approach” scenario developed by AU studies, was not retained in the quantification exercise because it does not, strictly speaking, constitute an autonomous scenario for rationalization of the RECs. It is indeed more of an approach that seeks to underscore the importance of incorporating the political dimension (harmonization of policies, sovereignty of States, principle of subsidiarity) in the process of regional integration.

On the other hand, given the huge obstacles of political (consent of States) and legal (amendment of Treaties) nature that would crop up in the implementation of the said “Abuja Treaty” scenario, the consultancy firm oriented its reflection towards a flexible “Abuja Treaty” scenario tagged “Option 2” which imply less radical adjustment mechanisms. This scenario is quite akin to the ‘anchorage communities’ scenario developed by AU studies.

Thus, four (4) scenarios have been quantified. The first, known as the ‘status quo’ scenario is in fact a scenario of ‘continuity’. Under this scenario, it is assumed that each REC would, in its specific domain, set its own integration momentum. The second scenario called ‘Abuja Scenario – Option 1’, is anchored on the Abuja Treaty framework which advocates for each country a single membership of one and only one of Africa’s 5 Regions: ‘North’, ‘South’, ‘East’, ‘West’ and ‘Central’. Scenario 3 called the ‘Abuja Scenario – Option 2’ or “anchorage community”, also takes on the concept of single membership of one of the 5 Regions, while retaining most of the existing memberships, provided this does not impinge upon the process of harmonized economic integration.
Lastly, scenario 4 known as ‘accelerated convergence’ scenario regards the current configuration of RECs as an unstoppable reality, but places their entire dynamics in the global process of integration of the Continent at large, while also taking into consideration the latest trends whereby some RECs are coming together to form ‘Macro-RECs’, as profiled in light of the Tripartite experience.

Thus, scenario 4 is inspired by the philosophy of the anchorage community scenario which allows for the co-existence of several forms of association, but proposes the delineation of the Continent into five broad regions called anchorage communities, each State belonging to only one of these regional RECs. However, this scenario pushes the integration process much further by proposing two anchorage communities instead of 5 - a community for the South and East embracing the existing Tripartite, and a community for the North, the Centre and the West, bringing together the territories covered by AMU, ECOWAS and ECCAS.

Quantification of the scenarios by means of macro-economic modelling was carried out in a way that identifies the impacts of the integration of the Continent in the form of “shock”, and the benefits thus determined are assumed to be produced in one fell swoop and once and for all. The quantification establishes the outcomes of a continental integration process in 2 stages. The first stage is intra-RECs integration – according to the rationalisation scenarios of countries’ membership of certain RECs or of each REC; and the second stage is continental level integration of the RECs. This quantification resulted in the establishment of the following principal outcomes, continent-wide details of which are provided in the Table hereunder:

1. Feasibility and Impact of ‘Intra-RECs’ Integration:

Status Quo Scenario: On account of the multiple memberships and the absence of firm commitment to integration even within the existing RECs,this scenario leads to limited impact in terms of improved GDP and employment. The increases in these two parameters are estimated, respectively, at 4.7% and 2.2% of their present levels, and this, for the entire period of intra-RECs integration. As regards the fiscal losses arising from changes in customs tariffs, the consolidated budget of all African countries will decline by around 1.3% in relation to the current GDP. This budgetary burden includes the cost of the reforms to be instituted which will amount to slightly over 11 US$ billion. The volume of external trade will be higher with increased exports and imports of the countries of the continent by 4.4% and 4.8% respectively, in relation to their present levels during this period of intra-RECs integration.

Accelerated Convergence Scenario: This consists of rationalization of countries’ membership of the RECs through formation of 2 regional blocs covering the whole of Africa, producing the most significant effect with the concurrent integration of each of these blocs. The impact on Africa’s GDP is estimated at 6.8%, and employment will see a 3.2 % rebound in relation to its current levels. Exports and imports will rise at the rate of 7.4% and 7.8% in relation to the start-up situation. The impact on fiscal revenues, due to the fact of integration, will be seen in the form of about 1% decline of the initial GDP percentage.

2. Feasibility and Impact of ‘Inter-RECs’ Integration and Formation of the AEC:

Given the status of States’ commitment at the present time, the status quo scenario can only lead to the formation of partially integrated RECs. If the inter-RECs integration process continues with the same limitations, the result will be an inconclusive and partially integrated AEC. For the entire process leading to the (limited) integration of all the RECs, the overall impact of this scenario is estimated at an additional GDP of 5.9% in relation to its current level for the continent as a whole. Exports, imports and employment will rise in relation to the start-up situation by 7.1%, 6.7% and 3.2% respectively. The net fiscal losses of the consolidated budget of African States will climb to the equivalent of 1.1%. Apart from these losses, the budget will have to finance reforms estimated for this scenario at slightly over US$ 11 billion.

The other scenarios (Abuja 1 and 2 and Accelerated Convergence) are compatible with the emergence of a full AEC.

a. The impact of creation of such continental economic union is identical for each of these scenarios. However, the intermediate results (intra-RECs integration stage) differ from one scenario to another. The impact of the creation of an AEC is, in terms of GDP, estimated at 13.5% of the current level (prior to intra-RECs integration) and at 8.6% additional employment in relation to the current situation. As regards fiscal revenue, there will be practically no change arising from the fact of creation of the AEC, as the decline in customs duty will be compensated by increased taxes on GDP which will see a net increase as mentioned earlier.

b. Nonetheless, the appraisal of the scenarios resulted in the superiority of scenario 4 from the standpoint of qualitative, economic and social impact measured in cost/benefit terms. As a matter of fact, it emerges from the economic calculation that the Accelerated Convergence Scenario allows for a global impact of +15.2% Africa’s exports, +13.9% Africa’s imports, +13.5% Africa’s GDP and +8.6% employment, obtained all through the process up to the advent of the African Economic Community. The calculations carried out sought to identify the effects in the form of a ‘shock’ and the benefits so determined are supposed to be produced at one fell swoop and once and for all.

Calculated in a similar way, the cost of scenario 4 stands at 1.1% of Africa’s GDP.

Thus, quantification of the scenarios resulted in the superiority of scenario 4 from the standpoint of quantitative, economic and social impact measured in cost/benefit terms. It flows from this quantification that the Accelerated Convergence Scenario is better indicated to most rapidly take advantage of the impact of the establishment of the AEC.

This outcome is predictable; for, this scenario consists of the convergence of the existing RECs towards 2 integration blocs, one in the East of the continent and other in the West; each bloc based on what already exists, but with robust coordination and parallel synergy within and between the 2 regional blocs towards the integration of the entire Continent by 2020. The gain in terms of time in relation to the initial Abuja project will be possible thanks to the coordinated progress of the 2 macro-RECs, with their mutual opening up being well prepared and anticipated.

The superiority of scenario 4 is a coherent outcome. Provided it is backed by a globalized harmonization momentum, multiple memberships can generate a faster process, thereby culminating in time saving and a “rapprochement” of benefits particularly as a result of all the “openings” to be generated by multiple memberships.

Scenario 4 – Accelerated Convergence – which is apparently a winner strategy is no less a challenge. It is indeed the harmonization strategy par excellence, particularly in terms of establishment of customs unions which constitutes the cornerstone of a successful integration process. Harmonization also involves the pace of movement as well as the rates chosen for the CETs.

It can therefore be posited that the calculations made in the context of this mission have made it possible to highlight the expected rationality, which is not to pitch “regional convergences” against “continental integration”. Quite on the contrary; by highlighting the superior benefits generated by scenario 4, the quantitative method showed the way forward, and that is, on the one hand, the establishment of a global coherence framework and, on the other hand, flexibility of implementation which, in the circumstances, will allow for the integration of regional specificities and solidarities. In this regard, “actual” experience buttresses the relevance of this type of choice, especially with the first “East-South” Tripartite, formation of which is underway, and the second Tripartite “North-West -Central” which is similarly desirable (as clearly explained to the Consultant during the talks with the RECs, and more especially with CEN-SAD).

As regards the financial outlay needed to successfully accomplish accelerated integration of the continent (according to the preferred scenario), the study advocates the creation of a US$15 billion fund to fulfil the following objectives:

US$13 billion budget (US$9.3 billion for the transition from the current stage of integration to that of regional blocs) to finance the actions required to institute reforms in support of the integration process in its totality (transition from the current stage to that of African Economic Community).

In addition to the budget required to carry out the reforms, and as a way to fully control the process of introducing structural changes to the budgets of the most exposed States, it is suggested, for this scenario, that a total budget of US$1.2 billion be set aside for fiscal compensation.

Lastly, and in an attempt to generate cultural and scientific externalities and consolidate the sense of Community belonging on the part of the African elite in the service of the continent’s development, it is proposed that a total financial outlay of US$0.8 billion be set aside to promote and support continent-wide centres of excellence for training in key areas.

Courtesy: AU

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