AFRICAN ECONOMIC CONFERENCE 28-30 OCTOBER 2013 Johannesburg, South Africa Trade in Intermediate Inputs and Trade Facilitation in Africa s Regional Integration Dr. Stephen Karingi & Dr. Siope V. Ofa Regional Integration and Trade Division 1
Outline: 1. Brief Background 2. Africa s Transformative Regional Integration 3. Transformative Regional Trade Integration and Industrialisation in Africa 4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade Integration 5. The role of Regional Economic Communities (RECs) in fostering a transformative regional trade integration in Africa 6. Conclusions and Policy Implications 2
1. Brief Background 1. Regional Integration allows for pooling of resources important for infrastructural and socio-economic development and integrated larger market for trade. 3
2. Africa s Transformative Regional Integration 1. A lot of concerted efforts have been invested on Africa s regional integration (RI) by African countries, RECs and Development Partners. 2. However, Africa s RI processes has encountered delays while political commitment at the continental level is undeniable, implementation at the country level is lacking. 4
2. Africa s Transformative Regional Integration Status of Regional Integration as of 2012 Source: Extracted from ECA et al., 2012. 5
2. Africa s Transformative Regional Integration Why is Africa s RI encountering delays? 1. Challenges (inadequate financial resources, inadequate infrastructure for trade, high nontariff barriers, different rules of origin, conflict and political instability etc). 2. Recent ECA survey (2012) on selected member states found that a higher number of respondents focal points for regional integration in Government (58 and 54 per cents) indicated that RI does not significantly contribute to job creation and creation of regional value chains respectively. 6
2. Africa s Transformative Regional Integration A need for a transformative Regional Integration? 3.Need to recalibrate RI priorities to emphasise the linkages between RI and employment (job creation). 4.Need for prioritising industrial transformation in Africa s RI agenda. 7
3. Transformative Regional Integration and Industrialisation in Africa (a). Status of Industrialisation in Africa 1. Overall, Africa s industrialisation has been weak and inconsistent (low export diversification and low intraindustry trade indexes) (ECA et al., 2013). 2. Using revealed comparative advantage index (normalised) (NRCA) to identify potential sectors of comparative advantage (Intra-African trade in 2011), the following trends stands out: (i). 27 African countries have NRCA in Agriculture and food sector (Broad Economic Category (BEC 1). (ii). 19 African countries have NRCA in Industrial Supplies (BEC 2) not elsewhere supplied, reflecting competiveness in trading in more sophisticated goods within Africa. 8
3. Transformative Regional Integration and Industrialisation in Africa (ii). (con t). It is estimated that Intra-African exports in 2011 totalled USD 69 million, of which 36% (highest share) was export in industrial supplies (BEC 2). Intra-African Exports by BEC, 2011 BEC USD (000) % Share 1 9,134,432.00 13.1 2 25,101,208.00 36.0 3 21,932,458.00 31.4 4 5,396,058.50 7.7 5 3,564,832.75 5.1 6 4,620,937.00 6.6 7 32,800.38 0.0 Total 69,782,726.63 100 Source: Author's estimation based on BACI Dataset (CEPII), 2013. 9
3. Transformative Regional Integration and Industrialisation in Africa (iii). In 2011, NRCA by African country; Top 5 African Economies - NRCA Index by BEC (2011) Somalia : BEC1 & 6 Senegal : BEC 2 Cote d'ivoire:bec 3 & 7 1 1 1 NRCA 2000.5 0 -.5-1 4 5 1 6 NRCA 2000 2.5 0 -.5-1 3 4 5 2 1 6 NRCA 2000.5 0 -.5-1 5 4 2 3 1 6-1 -.5 0.5 1 NRCA 2011-1 -.5 0.5 1 NRCA 2011-1 -.5 0.5 1 NRCA 2011 1 Madagascar : BEC 4 1 Tunisia : BEC 5 NRCA 2000.5 0 -.5 2 3 4 5 1 NRCA 2000 6.5 0 -.5 25 4 6 1-1 -1 3-1 -.5 0.5 1 NRCA 2011-1 -.5 0.5 1 NRCA 2011 Source:Author's estimations based on BACI dataset (CEPII), 2013 10
3. Transformative Regional Integration and Industrialisation in Africa (iv). Potential industry sectors, by African country, using NRCA Indices in 2011: Top 5 African Countries with Potential Industry Development (by BEC), 2011 NRCD* Index-BEC 1 NRCD* Index-BEC 4 NRCD* Index-BEC 7-0.028 Zambia -0.115 Eritrea -0.048 SACU -0.034 SACU -0.124 Uganda -0.441 Seychelles -0.037 Burkina Faso -0.148 Chad -0.539 Tanzania -0.080 Togo -0.165 Tanzania -0.559 Kenya -0.116 Tanzania -0.169 Mali -0.696 Zambia NRCD* Index-BEC 2-0.009 Tunisia NRCD* Index-BEC 5-0.036 Kenya -0.015 SACU -0.051 Morocco -0.020 Kenya -0.073 Equatorial Guinea -0.030 Uganda -0.081 Malawi -0.043 Cameroon -0.094 Congo NRCD* Index-BEC 3 NRCD* Index-BEC 6-0.234 Libya -0.054 Eritrea -0.434 Madagascar -0.256 Gambia -0.451 Niger -0.373 Benin -0.476 Senegal -0.378 Zimbabwe -0.488 Kenya -0.380 Malawi Source: Author's estimations based on BACI Dataset (CEPII), 2013. Note: * - Normalised Revealed Comparative Disadvantage in 2011. 11
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade Integration 1. Africa s dependence on primary commodities indeed provide opportunities and risks for industrialisation. 2. On one hand, Africa could capitalise on the abundant resource endowments and the current commodity price boom to fund its industrialisation efforts, however, focusing on primary commodities carries the risk of further de-industrialisation. 12
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade 3. Resource-based industrialisation could be a pathway for industrialisation in Africa. This is, using the gains from commodities exports of Africa, given if its focusing on value addition: (i). to promote industrial development in sectors unrelated to commodities; (ii). Income gains from commodities boom could boost higher demand in other industry sectors thereby enhancing production (and growth) of other noncommodities sectors; (iii) and, boost production through forward (processing raw commodities) and backward (producing inputs to be used for commodity production) for industrial diversification (ECA et al., 2013). 13
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade 4. In order to add value to extractive industries, intermediate inputs is critical for value addition of a Resource-based industrialisation pathway. 5. More than 80% of intermediate goods in 2011 are imported from outside Africa. 6. Therefore, Trade Facilitation measures are critical in ensuring that intermediate inputs required for Africa s industrialisation is accessible in a timely and cost effective manner. 7. Trade Facilitation measures (especially infrastructural projects for trade) are costly. (e.g.. 50 PIDA projects prioritised, estimated to cost around 70 billion between 2012-2020). 14
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade 8. Africa s imports of intermediate inputs Africa's Intermediate Goods Import (2000 and 2011), USD (000). 2000 2011 Africa % Share Africa % Share Africa 2,083,328.97 11 12,060,903.96 12 Rest of the World 16,118,412.63 89 87,106,994.39 88 World 18,201,741.60 100.0 99,167,898.35 100.0 Source: Author's estimation based on WITS Database, 2013. 15
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade 9. Domestic and International Resource mobilisation for funding Trade Facilitation measures are critical. One potential channel (domestic) is through curbing the domestic funds lost from Africa through Illicit Financial Flows (IFF). 10. Africa is estimated to have lost around USD409 billion between 2001 and 2010 via IFF. 16
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade 11.If funds lost via IFF are curbed, it could be better used for developmental purposes. Percentage Share 100 80 60 40 20 0 18 44 38 Africa: IFF, ODA and FDI Flows, 2002-2010 22 48 30 21 47 32 28 44 28 29 47 22 2002 2003 2004 2005 2006 2007 2008 2009 2010 IFF FDI Inflows (Author's estimation based on OECD, UNCTADstat, UN COMTRADE & CEPII-BACI, 2013) 30 29 41 30 29 41 32 38 30 ODA Commitment 27 36 37 Total (USD billion), 2002-2010 IFF 391.5 ODA DAC commitment 437.8 FDI Inflows 322.6 17
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade 12.Regional Development Banks could equally assist with access to finance towards ensuring that more financial resources is available for funding of Trade Facilitation projects. 18
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade Imported intermediate inputs in Africa 13. Using GTAP 8.1 dataset to evaluate trade in intermediate inputs for five African regions (61 countries and territories), the following trends stands out: 14. Although the level of industrialization is heterogeneous among African economies the overall level is low. 19
4. Intermediate Inputs and Trade Facilitation in Africa s Transformative Regional Trade 15.Across African regions, services is the largest sector utilizing the highest share of imported intermediate inputs for production (52 %). 16.Across all regions, manufacturing imported intermediate inputs make up the largest share 60% of total imported intermediate inputs (USD 226,187). 17.Manufacture and Energy & Mining imported intermediate inputs constitute 76 per cent of total imported intermediate inputs for production in Africa. 20
5. The role of Regional Economic Communities (RECs) in fostering a transformative regional trade integration in Africa Amidst challenges, RECs plays an important role in Africa s regional integration. Why? 1.RECs could effectively coordinate members progresses on implementation of RI activities more efficiently than individual countries. 2.RECs could be more proactive in the implementations of a wide areas of RI activities such as investment, free movement of people, and trade in goods and services. 21
5. Conclusions and Policy Implications 1. Need for refocusing of Africa s RI agenda with a transformative component to gain buy-in and support from all levels. 2. Resource-based industrialisation is an important pathway but access (affordable and timely) to intermediate inputs is crucial, hence the important role of Trade Facilitation. 3. Africa imports more than 80% of intermediate imports from outside Africa crucial for value creation in the manufacturing sector 22
5. Conclusions and Policy Implications 4. Findings suggests that across all African countries and territories imported intermediate inputs are critical in the manufacturing and energy & mining sectors. 5. Trade Facilitation measures are costly, and therefore domestic (and international) resource mobilisation is vital. 6. Funds lost via IFF could be one potential source if appropriate policy are put in place to curb losses. 23
5. Conclusions and Policy Implications 4. Regional Development Banks could equally play an important role towards access to finance for trade facilitation projects. 5. RECs have an important role to play in terms of coordinating implementation of RI activities. 24
Thank You! Regional Integration and Trade Division 25