Will There Be an African Economic Community?

Today, before the House Foreign Affairs Committee’s Subcommittee on Africa, Global Health, Global Human Rights, and International Organizations,  Africa Growth Initiative (AGI) Senior Fellow Amadou Sy and Nonresident Fellow Witney Schneidman will testify before Congress to answer the question, “Will there be an African Economic Community?”  Sy and Schneidman will be joined by Peter Quartey, senior economist at the Institute of Statistical, Social and Economic Research (ISSER) and head of the department of economics from at the University of Ghana. ISSER is one of six think tank partners that with which AGI works throughout Africa. Stephen Lande, president of Manchester Trade, will also testify.

Watch the related testimony, January 9, 2014 at 2 p.m. EST »

The Abuja Treaty, signed in 1991 by the African Union, set the path for how the African Economic Community (AEC) should progress via regional economic communities (RECs). Now, African member countries are working on the six stages of the AEC. They have already established eight RECs, which was stage I. Now the challenge is to harmonize tariffs (stage II) and create Free Trade Area (FTA) (III). The FTAs are expected to progress to a continent wide customs union (stage IV) to be followed by an African common market (V) with a single currency. The ultimate goal for the AEC is to merge the eight RECs into one economic and monetary union (stage VI).

The future African Economic Community and the current regional economic communities can create economic, social and security benefits not only for African countries, but also for the United States. As Sy, Schneidman and Quartey will testify, the U.S. should support regional integration efforts of the AEC.

Despite a stellar growth performance in the last decade—and a projection for even faster growth heading toward 2015—Africa’s growth in intraregional trade is fairly stagnant.  Africa trades relatively little with itself (12 percent), especially compared to North America (40 percent), Asia (30 percent) and the European Union (60 percent). Typically, individual African countries are small, fragmented economies connected by sparse infrastructure and expensive transportation routes.   

Schneidman, in his testimony, reminds us that the idea of the African Economic Community is not a new one.  The African region under the African Union has been interested in regional integration since most countries gained independence in 1960s, and the Abuja Treaty created the roadmap. Both Schneidman and Sy agree that regional integration is happening, albeit at uneven paces across the RECs in terms of the six stages. A prediction of whether every nation in the planned AEC will integrate both economically and monetarily is difficult to determine.

In his testimony, Sy suggests that improvements in intraregional trade could make sub-Saharan Africa a more attractive trading partner.  Working with Africa on a regional basis may serve to reduce some transaction costs and increase the volume of trade to which the U.S. has access.  For example, Kenya alone ranks as the U.S.’s 105th largest trading partner (2011 USTR figures), but if all of the East African Community (EAC) countries (Burundi, Kenya, Rwanda, Uganda and Tanzania) were a combined trading partner, they would be the U.S.’s 80th largest partner (2012 USTR figures).

Quartey will testify on the specific experience of Ghana and the Economic Community of West African States (ECOWAS).  He emphasizes that economic benefits are not the only advantages to regional integration.  In particular, Quartey suggests that U.S. support for ECOWAS will assist in the development of strong institutions that can stop the spread of terrorism and insecurity across West Africa.

To support deeper integration, Sy recommends expanding the White House’s Trade Africa initiative to encompass more RECs beyond the U.S.’s current partnership with the EAC. Schneidman highlights the need for further investment in the USAID Regional Trade Hubs in Africa to help promote the Africa Growth and Opportunity Act and increase two-way trade with Africa.  The scholars also note that the expansion of current U.S. initiatives in Africa could increase regional integration and open up bigger export markets for U.S. businesses. In short, the progress toward regional integration is beneficial for both the U.S. and African economies—whether or not a completely integrated Africa is realized by the suggested deadline of 2028.