Abstract

Over the past decades, African countries have set ambitious goals for their regional trade arrangements, but the results have so far fallen short of expectations. Most African RTAs started with a low level of intraregional trade. Thus, even if the RTAs had been more successfully implemented, the impact of these arrangements on Africa’s overall trade would have been small—unless they had created a more favorable environment for overall trade. The potential of the RTAs in exploiting economies of scale and enhancing competition has been limited by the lack of trade complementarity among RTA partners, small market size, poor transport infrastructure, and high trading costs at the border. More important, relatively high barriers against trade with the rest of the world have essentially turned RTAs into an import substitution policy at the regional and subregional levels.

Over the past decades, African countries have set ambitious goals for their regional trade arrangements, but the results have so far fallen short of expectations. Most African RTAs started with a low level of intraregional trade. Thus, even if the RTAs had been more successfully implemented, the impact of these arrangements on Africa’s overall trade would have been small—unless they had created a more favorable environment for overall trade. The potential of the RTAs in exploiting economies of scale and enhancing competition has been limited by the lack of trade complementarity among RTA partners, small market size, poor transport infrastructure, and high trading costs at the border. More important, relatively high barriers against trade with the rest of the world have essentially turned RTAs into an import substitution policy at the regional and subregional levels.

The most critical challenge to improve the performance of African RTAs is to open them up to the rest of the world. Experience from other parts of the world suggests that nondiscriminatory liberalization promotes intraregional trade as well as trade with the rest of the world. To make broad-based trade liberalization work, African countries also need to devote more resources to trade facilitation, with a particular focus on reducing infrastructure bottlenecks and impediments to trade at the borders. Streamlining existing RTAs and closer regional cooperation in sectors of common interest would also help reduce trading costs. In negotiating EPAs with the EU, African countries should ensure that these agreements result in lower external tariffs against the rest of the world to minimize trade diversion. These agreements should also be development-oriented, with a strong focus on comprehensive product coverage, trade facilitation, investment protection, institution building, and regulatory reforms in Africa.

The IMF can play an important role in helping African countries implement such a broad strategy for trade promotion. In addition to continued support in establishing macroeconomic stability, the IMF should strengthen its surveillance and technical assistance in managing shocks arising from trade liberalization and regional integration. The IMF could also, in collaboration with other international financial institutions, be more actively involved in the area of trade facilitation, particularly customs administration. Continued IMF support for multilateral trade negotiations in the WTO and greater market access for developing country exports will create a more favorable global environment for Africa’s trade. Ultimately, however, African countries themselves need to demonstrate a strong commitment to a program of broad-based trade reform to reverse the region’s marginalization in world trade and investment.

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