Does Africa need intra-African Socio-Economic integration?
The challenges facing Africa are enormous but let us look at some data for our discourse.
The rising population figures for Africa shows the urgency and enormity of the challenges Africa will be facing in about 30 years or so. The UN calculates that there are more than 7.79 billion living humans on the Earth at the moment, from which about 1.36 billion (16.72%) live on the African continent. Compared to China with 1.44 billion (18.47%), and India with about 1.38 billion (17.7%), Given the size of Africa of 30.2 million square kilometres with a landmass covering 20.4 percent of the total earth’s total land area, Africa cannot currently be argued to be overpopulated.
However, Africa with a population of 16,72% of the world population has an international trade share of less than 5%, meaning a lot of catching up to do. While Global population growth peaked several decades ago and has been decreasing since then, Africa’s growth has continued to see annual acceleration and by some estimates of up to 30 million people a year. Some estimates have it that by 2050, just about 30 years or so from now, the total population of Africa will have almost doubled to 2.4 billion.
Africa’s growing challenges are more apparent when it is considered that of the 2.37 billion increases in population expected worldwide by 2050, Africa alone will contribute about 54% and by 2100, Africa will contribute 82% of the total growth of 3.2 billion of the overall increase of 3.8 billion people worldwide. In this period, it is expected that Nigeria will be adding more people to the world’s population by 2050 than any other country, according to UN projections.
As Africa’s population grows, so also are her economic and demographic challenges that require the provision of additional physical infrastructure and jobs for the growing young population. By all measurements, Africa is not a poor continent, as it is endowed with so many natural resources spread across the continent. However, with rising populations, revenues from the export of unprocessed natural resources won’t be enough to meet the needs of the continent and because Africa’s products are often confronted with discriminatory regulations outside the continent’s shores, hence Africa needs intra-Africa trade. More so, this is likely to be compounded by the fact that demand for some of Africa’s natural resources will decline in the years to come as alternatives are being sought after across the world.
Therefore, the rather alarming figures above pose specific economic challenges that require appropriate and adequate responses from Africa’s leaders.
Economic Growth and Unemployment
A close look at the performance of Africa’s economy between 2000 and 2010 reveals that the continent achieved an overall average real annual GDP growth of 5.4%. Regionally, for example, the growth in the Sub-Sahara region was even higher, averaging around 7%. Although, these rather impressive overall growths have not led to any significant job creation and the alleviation of poverty, primarily because Africa’s growths have been fueled by increases in the demand for Africa’s natural resources, whose extractions processes are highly mechanized and are exported unprocessed.
For sustainable economic development to take place in Africa, Africa needs to start investing wisely, diversifying and strengthening its strategic intra-trade initiatives. Putting Africans to work can only occur by adding additional value to whatever we are doing, creating new products and services to meet the continent’s needs.
For intra-Africa’s trade to prosper, Africa urgently needs to eradicate its current fragmentation in regional systems and to create a unified system. Africa with a population of less than that of China or India has five different economic systems that have hardly been coordinating with each other.
At a time more and more countries and continents are building free economic trade blocks, Africa cannot afford to continue being fragmented in:
• Economic Community of West African Countries (ECOWAS)
• East African Community (EAC)
• Economic Community of Central African States (ECCAS)
• Southern Africa Development Community (SADC)
• UMA (Union of Maghreb Arabs)
The efforts of recent years towards intra-African trade are in the right direction and should be intensified. Africa has to get her acts together faster and speed up her integration process, linking and standardizing its railway tracks and better connections by roads, and waterways to cut costs of transportation. In an essay by M. Arino in 2014, she wrote that according to data from the African Union Commission, transport costs are 63% higher in African countries than the average in developed countries. These high costs pose impediments to intra-African trade and because of the poor connections of infrastructures, transportation costs within Africa are sometimes more than double the costs of moving the same goods to Europe.
There is no doubt that an integrated Africa would lead to more private initiatives and extensive economic liberalization policies, deregulations and free trade for the good of the whole continent.
All economic indications point to the fact that intra-Africa’s integration has the potential to transform the continent through long term investments built on the economics of scale to create economic prosperity. Competitions amongst Africa’s countries will be good for Africa and should be encouraged. This might lead to individual countries diverting resources to such sectors as education, healthcare and agriculture, social capital and mass transit, energy, finance and infrastructures that have the potentials of multiplier effects, to facilitate local development.
Amongst others, this will speed up skills development and the harmonization of cross border physical infrastructures that could fuel intra-African commerce and trade.
Access to Capital
Africa’s capital markets integration might force Africa’s Central Banks to re-orient their policies towards its private sector needs and move them away from laying too much emphasis on attracting short term equity investors outside the continent that are driven by quick returns, which dictates interest rates to the disadvantage of the SMEs.
Innovativeness and technology
Initiatives linked to adding value to endogenous resources for the African market would emerge everywhere to fuel innovations and indigenous technologies.
Companies working in similar sectors could be encouraged to cooperate to create clusters and jointly finance research centres to become global players. Any awareness campaign on “buy made in Africa and invest in Africa” and the need for Africans to spend their money and circulate it in Africa, would be plausible.
The Eco – Future Africa’s Common Currency?
From the experience of the EU, a common market for goods alone will not bring economic co-operation closer. Monetary co-operation is also needed for the internal market to develop and flourish together, and for the whole African economy to perform better with more jobs and greater prosperity for all. Africa needs one strong and stable currency for the 21st-century global economy, instead of individual countries operating their weak currencies.
The benefits of a common currency are diverse. These include:
• Stable prices for consumers and citizens
• Improved economic stability and growth
• More integrated financial markets
• A stronger presence for Africa in the global economy
A single currency will bring new strengths and opportunities that removes the need to exchange currencies between trading partners in cross-border transactions. Being able to compare prices easily will encourage cross-border trade and investment of all types, from individual consumers searching for the lowest prices, to large institutional investors who can invest more efficiently throughout the area without the risks of fluctuating exchange rates.
A single currency will make Africa an attractive continent for third countries to do business and that will give Africa a more powerful voice in the global economy.
Unfortunately, it is Nigeria’s lack of leadership, being the largest economy in the region that gave France space and encouraged its meddlesomeness through the six countries that use the Central African CFA, making them susceptible to pressure to agree to continue under their previous monetary arrangements with France, if even though it’s for the time being.
The euro peg proposed by the West African Economic and Monetary Union (WAEMU), championed by France may be controversial, given that this takes away the instrument of being able to devalue the currency by the WAEMU to make export cheaper, should there be a need, however, the benefits of a stable currency, particularly, when there are hardly any high-end products to export, may outweigh the ability to devalue the currency. This is because weak currencies tend to have higher rates of inflation and poor terms of trade that hurt the poor. Borrowing becomes more expensive over time. A stable eco will make it easily convertible with other currencies with enormous benefits in international trade and currency reserves.
To take off, the strict convergence criteria currently set for joining the single currency, which includes a deficit of less than 3% of GDP, inflation rate not higher than 10% and total debts to GDP ratio not higher than 70% are stumbling blocks to the introduction of the currency that most countries are unlikely to fulfil soon. Indeed, while strict criteria are necessary to support a strong currency some of these targets need to be re-visited and softened so that the eco can take off, while repair work continues. Such softening could be that any country that meets 50% of the criteria can be admitted with a time frame of say 5 years to fulfil the other criteria or be seen to be working towards fulfilling them. More importantly, are the institutions put in place to monitor compliance.
Submitted by Dr Jones Edobor
To The Nigerian Global Roundtable
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