Economic Cooperation in Africa: In Search of Direction 9781685854867

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ECONOMIC COOPERATION IN A F R I C A

ECONOMIC COOPERATION IN AFRICA In Search of Direction :

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:

AHMAD A . H . M . ALY

LYN

N E

R 1 E N N E R PUBLISHERS

B O U L D E R . L O N D O N

Published in the United States of America in 1994 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 1994 by Lynne Rienner Publishers, Inc. All rights reserved Library of Congress Cataloging-in-Publication Data Aly, Ahmad A. H. M. (Ahmad Abdel-Halim Mohammad), 1945Economic cooperation in Africa : in search of direction / Ahmad A. H. M. Aly. p. cm. Includes bibliographical references and index. ISBN 1-55587-525-4 1. Africa—Economic integration. 2. Africa—Economic policy. I. Title. HC800.A724 1994 337.1'6—dc20 94-18823 CIP British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America

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The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1984.

CONTENTS

List of Tables Foreword Reginald Herbold Green Preface 1

Introduction

1

PARTI 2

3

vii viii xiii

PAST EXPERIENCE

DISORDERLY MOVE

9

The Continental Level The Subregional Level

9 10

REAPING THE WHIRLWIND

23

West Africa Central Africa East and Southern Africa North Africa

23 27 30 31

PART 2 THE ROADS TO FAILURE 4

5

PURPOSELESS STRATEGY

35

The Classical Laissez-Faire Model Structural Disequilibria Domination of the Manufacturing Sector by Multinationals The Indispensability of Customs Revenues The Scarcity of Foreign Exchange Distributional Problems

35 41 43 45 48 58

IMPRUDENT ADMINISTRATION

65

The Multiplicity of Overlapping Schemes The Role of Politics

65 68

V

vi

CONTENTS

PART 3 APPROACHING THE FUTURE 6

7

REORIENTATION ATTEMPTS

75

Interventionism The Lagos Plan of Action The Southern African Development and Coordination Conference The Pan-African Economic Community

76 78 81 87

A PROPOSED WAY FORWARD

91

Rationalization Harmonization Payments Mechanisms The Role of Donors Political Will

93 96 106 119 125

List of Acronyms Bibliography Index About the Book and Author

129 133 139 145

TABLES

4.1

4.2

4.3

4.4

4.5

Customs Duties as Percentage o f Total Tax Revenue in Sub-Saharan Africa, 1 9 6 9 and 1 9 8 0

47

Foreign Exchange Holdings in Relation to Monthly Imports in Selected African Countries

50

N o n - O i l - E x p o r t i n g African Countries: Balance-of-Payments Summary

51

Commercial B a n k s ' Resources in Selected African Countries at the End of 1 9 9 0

53

Commercial B a n k s ' Claims on Government in Selected African Countries

53

vii

FOREWORD

Reginald Herbold Green

Economic cooperation in Africa is an important topic. That proposition has enjoyed fairly universal political, professional, academic, and large-business assent in Africa since 1 9 6 0 and only slightly less acceptance globally. Indeed, it was a proposition that the two main colonial powers—the United Kingdom and France—acted on within their colonial empires (as did South Africa with respect to Namibia). Although a fair amount o f the extensive body of social science and official literature from 1 9 6 0 to 1991 consists of either rhetorical statements or stillborn technical studies, there has been a steady flow of initiatives at institutional and operational levels throughout the period. However, the results amount to a tiny fraction of the potential gains, and most successes have been problematic, have peaked at a low level, or have been reversed. W h y the disjuncture between intent and opportunity, between allocated resources and actual results? How can more efficient and sustainable lines o f action be developed for the future (or can they)? These are the two major questions that Professor Aly addresses in this volume. Whatever one's view o f Professor A l y ' s particular judgments, analysis, and proposals, this is a thoughtful and thought-provoking study. Though Aly does not explicitly say so, one problem o f many cooperation efforts has been to start first and to think o f why, what, how, where, and when later. One might—perhaps too uncharitably—suggest that the A b u j a Treaty is the latest e x a m p l e o f that failure. T h e goal o f an African e c o nomic union and a s y m b o l i c target date for launching are one thing, but drafting a related treaty a decade in advance may be quite another. If, as the immediate operational provisions suggest, building up subregional e c o n o m i c cooperation, coordination, and integration are necessary preconditions for continental action, perhaps a declaration focusing on how that would be accomplished over the next five to ten years would have been more valuable.

viii

FOREWORD

ix

Despite Africa's record of failures in economic cooperation, the Abuja Treaty (like the Lagos Plan of Action's regional integration chapter before it) represents only a tarted-up common market of the type the Economic Commission for Africa has been peddling (and subregions trying) with no great success for three decades. The only two moderately successful subregional bodies are the Preferential Trade Area (PTA) of East and Southern Africa and the Southern African Development Community (SADC) (formerly Southern African Development and Coordination Conference [SADCC])—the two least dominated in operation (especially in the latter case) by echoes of neoclassical treatises designed for industrial economies or the single-market strands of European Economic Community operations and formulations. This suggests that rethinking the cooperation model might have been more useful than writing another treaty based on it. And the fact that the PTA and SADC, though largely in the same subregion, are in fact complementary as to 95 percent of their operations might have given rise to consideration of whether specialization and division of labor, as well as concentration of resources and elimination of duplication, should be key themes in devising more workable institutional frameworks. Professor Aly demonstrates that the degree of commitment on the part of governments toward allocating resources to regionally oriented endeavors and toward coordinating policies and projects that involve costs as well as gains has generally been low. How to reduce these obstacles is unclear. One route would be to move to laissez-faire via a neoclassical economic union. Whether this would lead to growth fueled by private trade is open to question. If an infrastructure (physical, institutional, and legal) is needed to create an enabling environment for trade, then direct, coordinated state involvement is essential. Another route would entail a leap to supranational bodies that have power to enforce coordinated action. The problem with this approach is that states unwilling to allocate resources and coordinate policies are unlikely to surrender significant power or refrain from snatching it back. A third route would be to act only when and where several member states have a common perception of a common interest better pursued jointly. In that case problems arise in having an initial front broad enough (1) to be seen as significant, (2) to avoid sectors likely to result in high-profile breakdowns, and (3) to achieve enough success to have a forward dynamic within sectors. Problems also arise in adding new sectors. Financing economic cooperation by foreign funding is of significant concern, as Professor Aly stresses. In this regard: •

Is the impact of external financing on coordination greatly different than at the national level? If not, will avoiding it regionally while using it heavily elsewhere create a bias against economic cooperation?

x

FOREWORD

•

Under conditions of extreme resource scarcity, how can any program win radically increased allocations of resources unless it also pulls in additional external resources that will pay for a large portion of its costs? • Given the ubiquitous presence of foreign finance, will the presentation of regionally agreed-upon sectoral proposals, made to donors by the regional organization, be more likely to preserve regional control over which proposals are selected than each nation negotiating separately? The last question leads to another key area in which Professor Aly poses the need for cooperation: structural adjustment (or more broadly, macropolicy coordination). Structural adjustment programs (SAPs) have been a fact of life in Africa since 1985 and will continue to be beyond 2000. Coordinated approaches (even if actual SAPs were national) would probably increase the degree of national influence and the contextual adjustment of SAPs. Similarly, a sectoral coordination strategy logically leads to including the macroeconomic sector—as S A D C now perceives and on which it is seeking a consensus. The interaction between a coordinated buildup of productive and infrastructural capacity oriented to regional economic linkage, and trade to validate that capacity, has not to date been addressed satisfactorily, as Professor Aly points out. That may be the strongest argument for divisions of labor. Sectoral coordination—such as that of the EC today or Benelux within it previously—requires a limited number of countries with a wide range of common interests that they perceive as useful to pursue together. Trade preferences, commercial clearing, and harmonization of nomenclature and documentation require as large a market as feasible, but loose contact and detailed coordination. The only African region in which economic regionalism has made real, if limited, progress in the 1980s—East and Southern Africa—is also the only region in which, de facto, such a division of labor exists. SADC plays the first role for ten countries (probably moving to eleven with a legitimate government in South Africa), and the PTA plays the second for almost twenty. That is neither how the "duplication" arose nor how it is usually seen, but the division arguably strengthens both SADC and the PTA as well as—more significantly—the nine S A D C members who are also PTA members. One eventuality might be to merge the Economic Community of West African States and the Economic Community of Central African States but to create SADC-like sectoral/macrocoordination groups for, say, the Dakar/Abidjan range, the Nigerian-centered cluster, and UDEAC. Zaire illustrates a problem: its eastern half belongs in the PTA and its western in ECOWAS/CEAC, and its sectoral coordination (post-Mobutu)

FOREWORD

xi

might best be served in SADC—ECA's habit of drawing lines on a map in a manner reminiscent of the Congress of Berlin (often the same lines) is not altogether helpful. The PTA has rebelled against ECA and has added several members (e.g., Rwanda, Burundi, Angola, Zaire, Sudan, and potentially South Africa by 2000) initially held to be outside its "proper" area. Professor Aly stresses the need for broader participation on the part of several parties, governments among them. If governments in their day-today operations see the regional body (and especially its secretariat) as an outsider or don't see it at all in normal operations, then regionalism is unlikely to move ahead fast. This is the reason for SADC's allocation of sectoral coordination to technical secretariats supervised by member states— to give a real, ongoing involvement to each state and to avoid the domineering secretarial alienation of all members seen as characterizing the latter days of the East African Community, and to a lesser degree the PTA and ECA. ECA's initial proposals for the Lagos Plan gave no role to subregional building blocks, and its Abuja drafts gave them far smaller roles for a far shorter period than did the final documents adopted. In debate ECA strongly resisted the changes pushed by several states—primarily S A D C and PTA members. This has reinforced their belief that strong secretariats try to govern, not serve, their member states (and led to calls for ECA's secretary-general to be elected by and held accountable to ECA's members—not, as now, the UN Secretary-General's appointed Viceroy for Africa). The cost of the SADC approach is that some states have created very weak technical secretariats, albeit the strongest three (those for transport and communications, food security/agriculture, and energy) are probably the strongest technical units in any African regional or subregional body. Participation by enterprises poses real problems. In terms of transport and energy, SADC has had some success—partly because the key enterprises are in the public sector. In other sectors and overall, though, repeated efforts have reaped limited results. The limited enterprise input— largely consisting of calls for lower taxes, more subsidies, and larger construction contracts—is an opportunity missed for states and enterprises. Whether federating national chambers of commerce—so as to create regional ones with secretariats able to build up and canvass opinion on broader, more positive inputs—is a way forward remains unclear. Participation—as in business, labor, church, and other special interest groups seeing the regional frame as relevant and having their own regional groups—is probably an important way to build a broader support base for regionalism. It appears to have been important in that respect in the EC. To a degree this happened in the old EAC and is happening to a lesser degree in SADC, but apparently not elsewhere. How these bodies should liaise

xii

FOREWORD

with the intergovernmental body is unclear—the EC's approach of consultation and involvement (cooptation?) requires numbers of expert personnel no African regional body has or will have in this century, but more liaisons, exchanges of information, and discussion workshops on regional issues of mutual concern (involving government as well as secretariat participants on the regional organization side) might be useful and practicable. So too would be more interaction with the press. Only in about half the S A D C states do newspapers carry stories on programs and projects (rather than only on conferences) and refer to regional aspects frequently in stories whose main focus is national. Directly elected regional assemblies are arguably a step toward democratization. As to "When?" the answer would appear to be, "Not yet." However, indirectly elected assemblies chosen by national parliaments (not necessarily totally from their own members) might in some cases be practical and useful as an interim step. Perhaps oddly, the only functioning body of this kind died with the EAC, and neither the PTA nor S A D C seems to have canvassed the idea seriously. Clearly there are more questions than answers and more failures than successes to date. But there are some successes—the African Development Bank (even if it is a different type of cooperation group), the PTA, and SADC. And there is an increase in the asking of basic questions. Often, to ask the right questions really is halfway to finding the right answers (which will probably vary from subregion to subregion and over time). It is to that process of identifying the right questions to ask that this volume is a significant contribution.

PREFACE

While on appointment as deputy director o f research at the African Centre for Monetary Studies ( A C M S ) , S e n e g a l , from October 1 9 8 5 to October 1 9 9 0 , I had the opportunity to read extensively on the topic of intraAfrican trade and cooperation. My readings resulted in several papers published in the centre's journals; one c o m m o n message was that past experience with regional cooperation had led the countries o f the continent almost nowhere. T h e urgent question had b e c o m e where to head and how to proceed. Fortunately, the opportunity to look deeply into that issue came when I was back again at the University o f Al-Azhar, Egypt; and I took advantage o f being in England in the summer o f 1 9 9 1 to get the materials of my study updated at the rich library o f the Institute o f Development Studies ( I D S ) of the University o f Sussex. I was very lucky to have the chance to exchange views on a number o f key issues with Professors Reginald Herbold Green and M i k e Faber o f the I D S . It is thanks to these useful discussions and to the valuable assistance o f the library staff at I D S that I managed to develop several ideas of the book. I owe special thanks to Professor Green, who generously spent much o f his precious time reading the manuscript. His constructive comments were extremely useful, and it was very kind o f him to write a foreword in addition. I am also indebted to Professor William Cyrus Reed, director o f the African Studies Office at the American University in Cairo. He kindly read the manuscript and encouraged me by extending support to update the materials at his office and to get the book published. I must not fail to acknowledge the unlimited assistance from the unknown soldier, my wife. She has patiently put up with the unpleasant sort o f life I am leading. Finally, a word o f deep gratitude is due my professor, Galal Amin o f the American University in Cairo. Without his assistance this volume would hardly have c o m e to light. I do not need to emphasize that the responsibility for any mistakes and shortcomings remains solely mine.

Ahmad A.H.M. Aly

xiii

1 INTRODUCTION

The track record of regional cooperation in Africa has been a major cause of concern. Three decades o f continued efforts have ended in near bankruptcy, which has given rise to a growing worry about the direction in which the cooperation drive is heading. Given certain unfavorable developments in the international environment—notably the steady decline in commodity prices, the new protectionism, and the heavy conditionalities of external aid—regional cooperation has rightly been seen as a pertinent means of attaining self-sustainment, reducing external dependence in a variety of important areas, and increasing bargaining power in external economic relations. Inspired by this conviction, the impatient African leaders, in the euphoria of independence, have been rash in swiftly creating a host of cooperation arrangements in almost all economic sectors and at various levels. According to the Economic Commission for Africa (ECA), seventy-five major intergovernmental organizations were set up as of 1972. 1 By now there are probably at least 100 such organizations, though some estimates put the figure at about

200. 2 Unfortunately, the outcome of these efforts has been disappointing. Quite a few arrangements have collapsed, and the performance of those that managed to survive has been very poor. Failure has been particularly common in West and East Africa. In West Africa, numerous schemes broke down after a short life, such as the Interim Council of Ministers o f the Countries of West Africa (ICMCWA), the Organization of Senegal River States ( O E R S ) , and the West African Free Trade Area (WAFTA). In East Africa, the East African Currency Board ( E A C B ) and the East African Common Market ( E A C M ) both collapsed. The standstill of both the Maghreb Permanent Consultative Committee (CPCM) in North Africa and the Senegambian Confederation in West Africa illustrate the paralysis of other schemes. In addition, the Organization of African Unity (OAU) cites other multilateral institutions whose operations were severely impaired. These mainly include those dealing with natural resources, such as the 1

2

INTRODUCTION

Regional Centre for Training in Aerial Surveys, the Centre for Services in Surveying and Mapping the East African Mineral Resources, the African Remote Sensing Council, the African Regional Centre for Technology, the African Regional Organization for Standardization, and the Association of African Trade Promotion Organizations. 3 The arrangements that have managed to survive have faced various problems. For example, the Economic Community of West African States (ECOWAS), perhaps the most successful multinational organization on the continent, does not appear to have made much progress, particularly in terms of positive economic integration and policy harmonization. 4 The Southern African Development and Coordination Conference (SADCC), another successful (though radical) grouping, is reported to have achieved little, and the regional economy in the Southern African subregion was at best stagnant throughout the 1980s. s The Union Douanière des Etats de l'Afrique Centrale (UDEAC) in Central Africa is reported to have been in a state of inactivity since 1966. 6 The crisis has induced one writer to conclude pessimistically that "it would be no exaggeration to say that Africa's experience with integration schemes over the last twenty years has been the experience of failure, and that the achievements of integration have been slight or non-existent." 7 Another scholar states that "glacially slow progress or break up were the rule not the exception in Africa despite the continuing verbal commitment to economic integration as desirable or even necessary." 8 Peter Robson summarizes the situation by saying, "Although Africa may not have reached the crisis that has been claimed in the third world, it did not altogether escape the malady. The short-term effects of integration were often not favorable: initial administration costs were high; benefits from expanded investment and scale economies may not accrue for a long time and in any case these and other benefits were uncertain, difficult to quantify and sometimes intangible; distributional difficulties are hard to resolve where potential gains are not obvious and sure." 9 Given this gloomy picture, the future of regional cooperation on the continent is in question. Is it still worthwhile to carry on costly and seemingly ineffective cooperation efforts? Would it be better for African countries to give up their collective cooperation projects and go it alone? Regardless of the history of failure, the predicament in Africa is such that its countries are now left with virtually no choice but to continue their cooperation: Though generously endowed with natural resources, most African countries have a narrow domestic market, in terms of both population and income, that poses a serious obstacle to the single-nation approach to economic development. Of the forty-five countries in sub-Saharan Africa, twenty-four are reported to have fewer than five million inhabitants each. By the end of the 1980s, six countries had fallen from the middle-income

INTRODUCTION

3

category to the low-income group, thereby raising the number of least developed countries on the continent to twenty-eight. The continent's external trade is also heavily dependent on outside markets, in terms of both commodities and geography. More than 90 percent of Africa's exports are accounted for by a few primary commodities, whereas manufactures represent about three-fourths of the continent's total imports. Nearly 80 percent of regional exports are destined for developed market-economy countries, from which roughly three-fourths of the continent's total imports are procured. By contrast, intra-African trade, as a percentage of Africa's total trade, declined to 4.5 percent at the end of the 1980s, down from 6.6 percent three decades earlier. 1 0 These patterns of Africa's foreign trade have exposed the development process in African countries to the destabilizing factors that dominate international markets. African economies and trade must be restructured in such a way as to increase collective self-reliance and thereby reduce dependence on the rest of the world. The international politicoeconomic order is currently crossing a historic turning point on the way to a new century and a new era. The old bipolar system has given way to one that is yet to be shaped. What used to be the Soviet Union has fragmented into several independent states. In contrast, many of the countries of Western Europe are on the verge of an economic and political union, probably by the end of this century. The European Union is expected to comprise in due course the other states in Western Europe as well as the countries of Eastern Europe, perhaps including the European republics of the former Soviet Union. North America has not missed the race. The United States, Canada, and Mexico have recently signed the North American Free Trade Agreement (NAFTA). Talk of a Southeast Asian grouping led by Japan has also long been in the air. These expeditious developments will have far-reaching implications, particularly for development financing in Africa, which has so far been heavily dependent on external sources under the old bipolar regime. African states, like many other developing countries, managed to secure sizable resources by playing superpowers against each other, an option no longer feasible in the new world system. For their part, Western aid providers will no longer need to "bribe" developing countries. They are therefore expected to adopt a tougher attitude toward African recipients, requiring them, among other things, to hold their own certificates of good conduct, usually issued on their behalf by the International Monetary Fund (IMF). Given the already onerous conditionalities of the Fund, bilateral as well as multilateral financial assistance is likely to be dearer than ever before. The conversion of the former socialist countries to liberal ideologies will further affect the direction of official and private aid flows in favor of these countries. Donors will earmark a good portion of their official aid

4

INTRODUCTION

to them—at the expense, of course, of those funds destined for Africa. 11 International organizations are in the process of reformulating their lending policies in favor of the countries of Eastern Europe. Commercial banks, growing tired of their problematic African customers, may find it more profitable to do business in Eastern Europe than in Africa. It will also be tempting for multinational companies to pull out of Africa in favor of these new lucrative markets. The warning signal is quite clear: economic cooperation among African countries has become a matter of survival in the post-Cold War era. Those countries that are not members of regional blocs will hardly have a place in the new world and will find themselves suffering from poverty, negligence, and isolation. What is needed in the light of these concerns is a rejuvenation of regional cooperation among African countries. In other words, the direction of the cooperation drive needs to be corrected, such that the lessons drawn from previous experience, the prevailing circumstances in the continent, and the changing international environment are all taken into account. The challenge is demanding. As a first step, it calls for a thorough examination of past experience, with a view toward pinpointing past weaknesses and coming up with constructive proposals to put intra-African cooperation on the right track. Fortunately, a good deal of intellectual work has already been undertaken to assess previous experience, but its thrust has been focused mainly on analyzing the causes of failure rather than on a future perspective. This gap between what has been done and what needs to be done is precisely the area of interest of this book. This volume endeavors to assist in bridging this gap, that is, to conceive appropriate actions to be taken to correct the course of intra-African cooperation. To this end, it tries to articulate some pragmatic ideas in what may be considered a realistic framework for regional cooperation in Africa. A smooth flow of analysis entails some unavoidable, though useful, repetition of the story of cooperation among African countries; this is necessary to show what has happened and, more important, to explain why it happened before any proposals are made concerning the years to come. To this end, the study is divided into three main parts, each covering two chapters. Part 1 briefly describes the relevant history of the past three decades or so. Chapter 2 gives a short account of cooperation initiatives that have been attempted on the continent at both regional and subregional levels. Chapter 3 summarizes the outcome of the whole experience. It describes briefly cases of failure and paralysis in each subregion and elaborates on the poor performance of those arrangements that managed to survive. Part 2 seeks to explain why these events happened. Three factors are focused on as being responsible for the poor achievements of African cooperation efforts: the adoption of an inappropriate integration strategy,

INTRODUCTION

5

multiple overlapping organizations and memberships, and the dominance of politics. Chapter 4 takes up the first factor, trying to explain why the integration strategy has not been working in the African context. After brief reference to the laissez-faire integration model adopted by almost all African groupings, the chapter thoroughly discusses the consequences of five major obstacles: structural disequilibria, dominance of the manufacturing sector by multinationals, indispensability of customs revenues, scarcity of foreign exchange, and distributional problems of economic integration. Chapter 5 deals with multiple overlapping organizations and memberships, and the dominance of politics. In contrast to Part 2, which focuses on the past, Part 3 is mainly concerned with the future. Its main purpose is to conceive what can be done to improve the cooperation process in Africa. Before new proposals can be made, it is necessary to consider what others have suggested in this context. This is precisely the subject matter of Chapter 6, which examines four major initiatives that have been proposed and/or tried: interventionism, the Lagos Plan of Action (LPA), the Southern African Development and Coordination Conference (SADCC), and the Pan-African Economic Community (PAEC). In each case, emphasis is placed on the innovations, performance, and weaknesses. Chapter 7 lays out a number of pragmatic ideas in a realistic framework for future action on regional cooperation in Africa. The proposal comprises future action in three main stages: in the short term, rationalization of the existing subregional organizations; in the medium term, harmonization of national development plans of member countries; and, in the long term, full integration of subregional economies. For quite practical reasons derived from previous experience, the study conceives future action as being concentrated, for the time being, on the rehabilitation of cooperation in the continent, i.e., on the rationalization and harmonization processes. The rationalization exercise involves reconsidering the existing cooperation arrangements so as to have only one economic community in each subregion to orchestrate cooperation efforts. The harmonization of national development plans of member countries represents another necessary step on the way to a full integration of regional economies in due course. I recommend taking advantage of the IMF/World Bank-sponsored structural reform policies currently being implemented in almost all African countries, with particular emphasis on privatization programs and debt/equity swaps. The structure of this proposal needs to be buttressed by three main pillars: an efficient payments mechanism, an active role on the part of donors (particularly the African Development Bank—the ADB), and the firm political will of Africans. I argue that the clearing mechanism is the most appropriate payments arrangement in the short term, and therefore I recommend that the existing subregional clearinghouses be reformed in such a

6

INTRODUCTION

way as to resolve the difficult problem of structural imbalances of intragroup trade. I propose that, in the m e d i u m term, the existing clearinghouses be modified into subregional payments unions. T h e long-term objective is to p r o m o t e the p a y m e n t s unions into subregional or, better, regional monetary unions. The A D B is given much room to participate actively in the integration process. For instance, one r e c o m m e n d a t i o n is to create a trade window to provide credit facilities to the clearinghouses and the proposed monetary unions. The A D B can also finance the structural reform policies, and should pay increasing attention to the regional projects. Finally, I recommend that the resources of the African Development Fund and the Nigerian Trust Fund be allocated jointly by the Bank and the subregional communities; and other donors are urged to play a similar role by, among other things, revising their lending policies in favor of program and sector aid. T h e entire scenario hinges on the firm political will of African leaders, without which the integration project cannot be set in motion.

Notes 1. EC A, Directory of Intergovernmental Cooperation Organizations in Africa. 2. The Economist, 22 June 1991, p. 58. 3. OAU, Lagos Plan of Action for Economic Development of Africa, 19802000. 4. Asante, S.K.B., "Regional Economic Cooperation and Integration." 5.Bowen, B., "The Southern African Development and Coordination Conference." 6. Jalloh, Abdul A., "Foreign Private Investments and Regional Political Integration in UDEAC." 7. Asante, S.K.B., "Regional Economic Cooperation and Integration." 8. Green, R. H., "Building Economic Regionalism in Sub-Saharan Africa." 9. Robson, P., Integration, Development and Equity. 10. ACMS, Cooperation Strategies among African Countries for Promoting Intra-African Trade. 11. It has recently been reported, for example, that Denmark has cut its aid program for Kenya from $40 million in 1990 to $24 million in 1991 because of "misappropriation and Kenya's poor human rights record." Denmark has also warned Uganda that aid may be cut if it is misused. It is further reported that this is the first sign of a general toughening of the attitude of Western aid givers in Africa. See The Economist's Foreign Report, 3 October 1991.

PART 1 PAST EXPERIENCE

2 DISORDERLY M O V E

Following independence, there was universal agreement on pan-Africanism as an effective means of attaining the twin objectives of complete decolonization and rapid economic growth of the continent. However, no similar consensus was reached among African leaders, policymakers, and thinkers on how to approach pan-Africanism. Two points of view, diametrically opposed to each other, dominated the debate: continentalism and functionalism. The continentalists, or the radicals, called for immediate political unification of the continent (i.e., the formation of a United States of Africa) on the grounds that what Africa needed was an integration of common economic functions. The functionalists, or the conservatives, by contrast, were in favor of creating subregional groupings as a realistic basis for political unity. The lack of an agreed-upon strategy resulted, in the euphoria of independence, in a disorderly cooperation drive at all levels; a host of cooperation schemes were established in an uncoordinated manner.1

The Continental Level At the continental level, several attempts have been made to attain the highly ambitious objective of a united Africa, but all but one have unfortunately failed, mostly because of such factors as divergent ideologies, different languages, colonial heritage, national interests, and personal rivalries. Notable examples were Nasser's Afro-Asian Peoples Solidarity Organization (AAPSO), Nkrumah's Conference of Independent African States (CIAS), the Pan-African Freedom Movement of East and Central Africa (PAFMECA), the All-African Peoples Conference (AAPC), the Union Africaine et Malagache (UAM), and the Casablanca Bloc. 2 The exception was the Organization of African Unity (OAU), whose agreement was signed in Addis Ababa, Ethiopia, in 1963 by heads of state and government of thirty-two independent countries. 9

10

PAST EXPERIENCE

In collaboration with the Economic Commission for Africa (ECA), the OAU has been orchestrating cooperation efforts in the continent at both regional and subregional levels. However, their combined efforts to establish pan-African arrangements have produced mixed results. Some specialized arrangements, such as the African Development Bank (ADB) and the Association of African Central Banks (AACB), managed to survive, but other schemes failed even to take off. The two attempts to create a regional payments union are a case in point. The first attempt was made by the signatories of the Casablanca Charter (Algeria, Egypt, Ghana, Guinea, Mali, and Morocco) when they signed an agreement in Cairo, Egypt, on 2 April 1962 making it obligatory for all current settlements between the participating countries to pass through the multilateral system. However, the union has remained nonoperational because the agreement never entered into force, mostly because of political reasons. The other attempt was made by the ECA at its fifth session in 1963. Resolution 87(v) invited the executive secretary to "undertake a study of the possibilities of establishing a clearing system within a payments union between the African countries and to submit the study to the commission at its seventh session in 1965." Professor Triffin, who was commissioned to undertake the study, proposed a payments union that has also remained in the project stage because "the preconditions for its existence were not forthcoming." 3

The Subregional Level Uncoordinated action at the subregional level has paralleled the hasty move at the continental level. The tendency to increase subregional cooperation efforts has been due in part to the frustration faced at the continental level. The West and Central African subregions have been the most active, whereas North Africa has made less significant efforts. The experience of the East and Southern African subregion was disappointing before 1981 but has since turned out to be promising. The West African Subregion Geopolitically, the West African subregion 4 consists of fifteen countries, including eight former French colonies, four British colonies, one Portuguese, and one Spanish. 3 The former French colonies have been the most active group in the subregion and in the continent as a whole, in terms of economic cooperation. Thanks to them, West Africa has become the most active subregion in terms of cooperation initiatives. According to the ECA, as of February 1985 there were some fifty intergovernmental organizations working in West Africa alone in almost all economic activities. 6

DISORDERLY M O V E

11

Economic cooperation in the subregion, as in the other subregions, dates back to the colonial era. Each colonial authority used to bind occupied territories together under one central administration, merely for administrative convenience. Creating common services and common moneyissuing boards and adopting common policies proved useful in this context. Most of these arrangements, however, collapsed on the eve of independence. The newly independent English-speaking countries preferred in the beginning to go it alone, and the French-speaking ones tried to maintain their economic links, especially the old monetary union that had been established. 7 The union was initially integrated in the French monetary system when the Bank of West Africa (BAO) was established in 1901; it served as an issuing institution for all French colonies in West and Central Africa. In 1955 the BAO was split up into two separate issuing institutions: the Bank of French West Africa and Togo (AOF) for West Africa, and the Bank of the French Equatorial Africa and Cameroon (AEF) for Central Africa. In 1959 the first bank was renamed the Central Bank of West African States (BCEAO). Following an agreement signed in 1961 by Benin, Burkina Faso, Cote d'lvoire, Mali, Mauritania, Niger, and Senegal, the bank was authorized to perform the wider functions of a common central bank. Immediately after 1961, Mali withdrew from the union but returned to it in 1984. Togo, which had not signed the treaty, joined it in November 1963. In 1972 Mauritania decided to withdraw from the union and to create its own currency. The statutes of the bank, which came into force in 1962, were revised in 1973 following a new treaty signed in November 1973 by the member countries, as well as a new cooperation agreement signed in December 1973 by the member countries and France. In 1959 Benin, Burkina Faso, Cote d'lvoire, and Niger signed the Treaty of the Council of the Entente States, to which Togo acceded in 1966. The objectives of this grouping were mostly political in nature. In the same year, the West African Customs Union (UDAO) was established, but collapsed after a short life. An interim council of ministers for all the countries of West Africa except Guinea was initiated in the early 1960s. A provisional secretariat was set up to undertake the preparatory work connected with the proposed community. While the countries debated how to finance the secretariat and make it effective, some member countries, along with Guinea, decided to create the Organization of Senegal River States (OERS). The creation of the OERS was justified on the grounds that it was the offspring of the interstate committee founded in 1963 for the development of the Senegal River Basin. The founders of the OERS therefore requested that their organization be acknowledged as the nucleus of the proposed enlarged community. However, the OERS ultimately failed to achieve its objectives and broke down in November 1971. The OERS was

12

PAST EXPERIENCE

followed in early 1972 by a new organization: the Organization for the Development of the Senegal River (OMVS), consisting of Mauritania, Mali, and Senegal. The main objectives of the OMVS in terms of trade and development were similar to those of the defunct OERS. The three member countries of the OMVS, together with Benin, Burkina Faso, Côte d'Ivoire, and Niger, had earlier constituted the West African Customs and Economic Union (UDEAO). Political considerations, which dominated integration dynamics in the continent, led the countries of the UDEAO to expand the union's activities by transforming it into the West African Economic Community (CEAO). The member countries, all French speaking, wanted to assert their common identity vis-à-vis the English-speaking countries in the subregion; in particular, Nigeria, which was trying to play a leading role in the subregion, suggested the formation of a pan-West African cooperation arrangement embracing all the countries of the subregion. The CEAO treaty was signed in Abidjan, Côte d'Ivoire, in 1973 and came into force the same year. For their part, the English-speaking countries considered some sort of West African unity immediately after becoming independent. President William Tubman of Liberia first promoted this idea in January 1964 when he introduced the notion of a West African free trade area. Representatives of four West African states—Côte d'Ivoire, Guinea, Liberia, and Sierra Leone—met in Monrovia, Liberia, in August 1964 to consider the possibility. They signed an agreement in May 1965 in Freetown, Sierra Leone. The attempt met with only very limited success, however, and the organization eventually fell victim to political conflict between Côte d'Ivoire and Guinea. Liberia and Sierra Leone later envisaged the introduction of limited trade preferences for the products of a number of existing industries, as well as cooperation to promote the establishment of new industries to save their combined markets. In order to boost progress on these schemes, the two countries invited the United Nations Development Program (UNDP) to set up a joint mission to study the scope for cooperation in trade and agricultural and industrial development, and to advise on an appropriate industrial framework. The mission recommended the establishment of a full customs union, the Manu River Union, which was officially inaugurated in October 1973 and which Guinea joined in 1980. The leaders of Nigeria never gave up their dream of leading a comprehensive pan-West African cooperation arrangement embracing all the countries of the subregion. In the 1960s they suggested the establishment of a West African economic community, but their civil war temporarily halted this project. After the end of the war, Nigeria resumed its initiative, and a joint Nigeria-Togo commission was formed in 1972 to work out the details of the proposed community. The commission visited all West African states except Guinea-Bissau, and a ministerial conference was subsequently held in Lomé, Togo, in December 1972 to consider the

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commission's proposals. In May 1975 the Lagos Summit of Heads of State and Government adopted the draft treaty to create the Economic Community of West African States (ECOWAS) on the basis of the Lome proposals. By December 1975 all fifteen signatories had ratified the treaty, and Cape Verde adhered soon after. Special relations between Senegal and The Gambia set Senegal to consider integrating The Gambia. (The Gambia was originally created at the heart of Senegal, thus isolating the southern region of Casamance from the rest of Senegal. During the colonial era, there were some failed British and French attempts to exchange some French colony for The Gambia so that it could be incorporated into Senegal.) Following Senegal's independence in 1960, the two countries established an interministerial committee to discuss matters of joint interest. While Senegal was trying to attain full political and economic integration of the two countries, The Gambia insisted on a high degree of autonomy in the framework of a weak confederal system. The discussion produced an agreement on foreign policy and defense constituting the basis for a treaty of association signed in Banjul, The Gambia, in 1967. The economic as well as political results of the treaty were, on the whole, modest until 1981. Following the suppression by the Senegalese forces of an attempted coup d'état in The Gambia, the presidents of the two countries made a political decision to establish a confederation that included an economic and monetary union, but no timetable was set for implementing it. Progress on this project was very modest, which eventually convinced President Diouf of Senegal to suspend the operations of the confederation in 1989. Another pan-West African cooperation arrangement, the West African Clearing House (WACH), was established in 1975. The initiative came from the association of African Central Banks (AACB) in 1973, when it adopted subregional payments systems and required all African subregions to establish their own clearinghouses. At its operational inception, the WACH had a membership of eight central banks representing thirteen countries: BCEAO (for Benin, Burkina Faso, Cote d'Ivoire, Niger, Senegal, and Togo) and the central banks for Ghana, Guinea, Liberia, Mali, Nigeria, Sierra Leone, and The Gambia. The central banks of GuineaBissau and Mauritania subsequently joined the WACH in 1978 and 1980, respectively, thus raising the membership of the WACH to ten central banks for fifteen countries. In the fiscal year 1984/85, the Bank of Mali became part of the West African Monetary Union (WAMU). The Central African

Subregion

The Central African subregion comprises eleven countries, five of which are former French colonies, three Belgian, and three Portuguese. 8 The apportionment of the subregion among the three colonial powers has

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PAST EXPERIENCE

undoubtedly had a strong bearing on cooperation efforts among the now independent countries of the subregion. As in West Africa, the former French colonies have been the most active group of countries in the subregion as far as regional cooperation is concerned. Cooperation among them can be traced back to 1910, when the Central African Republic (CAR), Chad, Congo, and Gabon were integrated in what was then called French Equatorial Africa, which had a governorate-general and a high commission in Brazzaville. The governorategeneral was intended to undertake a limited range of common services, but it nonetheless followed strong centralizing policies. Because the member countries were not quite satisfied with the way resources were allocated, they decided in 1956 to end the federal system and instead to elect territorial governments. However, although they favored political independence, the four newly independent states maintained most of their former economic links and in October 1957 established the Customs and Fiscal Convention, which in June 1959 became the Equatorial Customs Union (UDE). Following the unification of Cameroon in 1961, a convention was signed in June that year providing for progressive integration of the Cameroon market into the UDE and for other forms of cooperation comparable to those existing among the UDE's four member countries. While efforts were being made in the following three years to put this convention into operation, a problem arose concerning the location of a projected oil refinery. This issue drew the attention of the partner countries to the necessity of having a common development strategy and sparked off a series of meetings and commissions that finally led to the formation in December 1964 of the Economic and Customs Union of Central African States (UDEAC), which aimed at attaining not only a common market but also the ambitious objective of economic union. The treaty entered into force on 1 January 1966. Two years later, the treaty faced its first crisis when Chad and CAR left the union in April 1968 in a dispute over the distribution of the solidarity fund's resources and the location of new industries. The two countries then joined with Zaire to form the Union of Central African States (UEAC), which was more political than economic, but the relevant treaty has never been ratified. In December 1968, CAR rejoined the union. 9 The four member countries of the union decided to enlarge it to include the eleven countries of the subregion. To this effect, they invited the other seven countries to attend the 17th Summit Meeting of the Heads of State and Government of UDEAC, held in Libreville, Gabon, from 17 to 2 0 December 1982. The meeting agreed in principle to create the Economic Community of Central African States (ECCAS), which will cover a total area of about three million square kilometers and comprise a total population of well over sixty million. The agreement has received the blessing of the OAU and the ECA. 1 0

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As stated previously, the five French-speaking countries in the subregion, together with the French-speaking countries in West Africa, have been enjoying a common monetary system that was integrated into the French system from 1901 to 1955. The Bank of West Africa (BAO) was established to serve as an issuing institution for all French colonies in West and Central Africa, but in 1955 it was split into two separate issuing institutions: the Bank of French West Africa and Togo (AOF) and the Bank of French West Africa and Cameroon (AEF). In 1959 the first bank became the Central Bank of West African States (BCEAO), and the second became the Bank of Equatorial African States and Cameroon, which was reorganized and renamed in 1972 as the Bank of Central African States (BEAC), comprising Cameroon, CAR, Chad, Congo, and Gabon. Equatorial Guinea joined the bank in January 1985. The two central banks of West and Central Africa have continued issuing the same currency, the CFA, which is called "the franc of the African Financial Community" by the BCEAO and "the franc of financial cooperation in Central Africa" by the BEAC. It is important to note that UDEAC and BEAC have been developed independently and on a parallel basis; there has been no coordination between them, which is reflected in the independence of their decisionmaking centers and the presence of Chad in B E A C only. 11 Another monetary arrangement, the Central African Clearing House (CACH), was created by the six member countries of B E A C as well as Zaire. The agreement was signed in January 1979 and became effective in May 1981 after its ratification by the contracting parties. After some operational difficulties, it commenced operations on 1 February 1982. Its major purpose is to foster trade, mainly between the BEAC member countries on one hand and Zaire on the other; the obstacles related to intraB E A C trade in terms of payments are eliminated by the use of only one currency, the CFA, in circulation in all the member countries. 1 2 The former Belgian colonies of Burundi, Rwanda, and Zaire tried to have their own cooperation arrangements. They created the Economic Community of the Countries of the Grand Lakes (CEPGL) in 1976, which was actually a continuation of the old economic union formed in 1925 by the government of Belgium itself. The independence of Zaire (formerly Congo) in 1960 ended the old economic union, but after Burundi and Rwanda achieved independence in 1962, the three countries re-created the union under its present name. 1 3 The East and Southern African

Subregion

The story of cooperation is rather different in the nineteen countries of the East and Southern African subregion (one of which is the Republic of South Africa). 1 4 Of these countries, there were ten British colonies, three

16

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French colonies, and one Portuguese colony. As in West and Central Africa, cooperation among the countries of this subregion began as early as 1917, mainly for administrative convenience. The former British colonies, not the French ones, took the lead in this subregion, but unlike the former French colonies in the other subregions, they failed to maintain their preindependence relations. Almost all cooperation schemes collapsed immediately before or after each country achieved independence in the early 1960s. Even after independence, they tried in vain to reestablish subregional cooperation. It was only in the early 1980s that they managed, in coordination with the other countries in the subregion, to establish subregional arrangements. Following the original occupation of East African territories by Britain, a de facto common market—the East African Common Market (EACM)—was developed among Kenya, Tanganyika (now part of Tanzania), and Uganda. The three territories share common boundaries and a homogeneous population, but they were each separately ruled by a governor. Common services, particularly for transport and communications, were soon developed, and there were no tariffs or any other restrictions on interterritorial trade. In 1917 a free trade area was created between Uganda and Kenya, which soon developed into a common market. Tanganyika joined the common market in stages between 1922 and 1927, although the customs administrations were not amalgamated until 1949. The bulk of the benefits of integration was captured by Kenya, a fact that led the other partners to express dissatisfaction with the distribution of the costs and benefits of integration among the three partner countries. The situation was compounded by political considerations that threatened the very existence of the common market in the aftermath of independence. At that time, Tanzania had a socialist orientation and therefore adopted a radically different economic approach. In 1965 it announced that it was going to have its own central bank with a separate currency, and thereafter it imposed quotas and other restrictions on its imports from Kenya. Uganda followed Tanzania's lead. In an attempt to maintain the common market, the three countries agreed to appoint a committee to assess the situation and submit definite recommendations. Based on these recommendations, a treaty of East African cooperation was signed in Kampala, Uganda, on 6 June 1967 and came into force on 1 December 1967. The treaty established what is referred to as an East African community, including a common market. Nevertheless, the subsequent pace of events demonstrated that the differences among the three countries were so great and growing that nothing could have prevented the eventual collapse of the infant community; it broke up in 1977. 15 British colonial authorities created three common monetary areas in the subregion: the East African Currency Board (EACB), the Southern

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Rhodesian Currency Board, and the South African Reserve Bank. The three boards collapsed, however, immediately after the countries of the subregion gained their independence. 1 6 The East African Currency Board, comprising Kenya and Uganda, was formed in December 1919; Tanganyika joined in 1920 and Zanzibar in 1936. During World War II, the authority of the board extended to Ethiopia, British Somalia, and Aden. The board operated only as an automatic money changer and had no control over credit. Ethiopia, Somalia, and Aden left the board in 1945, 1950, and 1965, respectively. Zanzibar later merged with Tanganyika to form Tanzania. The British government intended to transfer the East African Currency Board into a common central bank. From 1955 to 1964 the government made some innovations to this end, including moving the headquarters of the board from London to Nairobi in August 1960 and placing the board under the control of the colonial governments. However, the structure and operations of the board were not considered advantageous to future economic development in the three countries. Therefore, on the eve of their independence, the three individually explored the possibility of establishing a common central bank. In 1959 Uganda commissioned W. T. Newlyn to make recommendations on the future central banking system of the area, but Newlyn's report was never implemented. Tanganyika in turn entrusted Erwin Blumental to investigate the possibility of converting the EACB into an East African central bank. Blumental submitted his report in January 1963, but it was also shelved. In 1964 the three governments invited the IMF to recommend a central banking system for East Africa, but before the IMF experts arrived the three countries had moved toward establishing separate central banks. The three governments appeared to have agreed that a common central bank would not be realistic in the absence of a political union, which could not have been attained given the divergent ideologies of the three member countries at that time. Thus, Tanzania set up its own central bank in December 1965, followed by Kenya and Uganda in May 1966. The Southern Rhodesian Currency Board was established in 1938 to take care of the currency needs of British Central Africa. It comprised Southern Rhodesia (now Zimbabwe), Northern Rhodesia (now Zambia), and Nyasaland (now Malawi). In due course, the British authorities in Central Africa felt the need for a central bank in order to develop the region's financial infrastructure and to encourage monetary stability. The Bank of Rhodesia and Nyasaland was therefore created in 1956. However, the bank suffered from a number of shortcomings that, in conjunction with the political factors of the independence of Northern Rhodesia and Nyasaland, led to the 1964 bank split into the Reserve Bank of Rhodesia, the Bank of Zambia, and the Reserve Bank of Malawi.

18

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In 1921 the South African Reserve Bank was established, and the commercial notes, which had been legal tender in the whole of Southern Africa, were replaced with the South African rand. The new rand also became the official currency of Bechuanaland (now Botswana), Basutoland (now Lesotho), and Swaziland. The three countries, along with the Republic of South Africa ( R S A ) , unofficially constituted the Rand Monetary Area, and the financial institutions of the three countries began to comply with the monetary and exchange control directives o f the South African Reserve Bank. The three countries continued to use the rand unofficially after their political independence. In 1974 Botswana opted out of the Rand Monetary Area and introduced its own currency, the pula. Lesotho and Swaziland also issued their own currencies, the loti and lilangeni, respectively, which were tied to the South African rand at the rate of 1:1. Each of the three countries now has its own central bank. In addition, all four countries formed the Southern African Customs Union ( S A C U ) , whose agreement was revised both in 1910 and in 1969. (The last revision became effective as of 29 January 1970.) However, given the geographical setting of the three B L S countries (Botswana, Lesotho, Swaziland) and the surrounding political circumstances, it is difficult to consider the SACU a proper "cooperation" arrangement because it was essentially imposed on the three countries. 1 7 The recent political and constitutional changes in the R S A involving, inter alia, the adoption of majority rule will have farreaching implications on the modus operandi not only of SACU but also of S A D C C and the Preferential Trade Area for Eastern and Southern African States (PTA). The very existence of SACU will even be put in question. This history of failure notwithstanding, the countries of the subregion did not give up altogether their collective cooperation efforts. It was only three years after the collapse of the East African Economic Community in 1977 that they initiated, almost simultaneously, two ambitious all-embracing cooperation arrangements: the Southern African Development and Coordination Conference ( S A D C C ) and the Preferential Trade Area for Eastern and Southern African States (PTA). The member countries seem to have benefited largely from the lessons drawn from the subregion's previous experience with multilateral cooperation. Unlike traditional cooperation arrangements, which are based on formal treaties spelling out their objectives, activities, and institutions, S A D C C is based on a collective declaration made by the nine founding states in Lusaka, Zambia, in 1980 that set forth its objectives and strategies but not its institutional structure. 18 The ultimate goal of this nontraditional grouping was to reduce dependence of the member countries, especially (but not solely) on the Republic o f South Africa, which is political in nature. The establishment of S A D C C dates back to April 1980, when the heads of state of Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia, and Zimbabwe met in Lusaka, Zambia, and

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decided (1) to issue the Lusaka Declaration, according to which the heads of state committed their countries to a program of harmonious and coordinated development, and (2) to approve a program of action that accorded the highest priority to improving transportation and identifying a number of other strategic areas in which activities for economic development could be undertaken on a regional basis. 1 9 At almost the same time, preparatory work for the establishment of the PTA was under way. Again in Lusaka, an extraordinary meeting of the subregion's ministers of trade, finance, and planning was held to consider, among other things, the creation of a preferential trade area for the East and Southern African states. A corresponding treaty was signed on 21 December 1981 by twelve countries: Comoros, Djibouti, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Somalia, Swaziland, Uganda, Zambia, and Zimbabwe; it came into force on 30 September 1982. Burundi, Rwanda, and Tanzania later signed the treaty as well. After the treaty was signed, the PTA Clearing and Payments Committee, which consists of the governors of the central banks of the PTA member countries, entered into negotiations for setting up the PTA Clearing House. The agreement was approved by the PTA Council of Ministers in December 1983, and the clearinghouse commenced operations on 1 February 1984. The Reserve Bank of Zimbabwe was designated to perform the duties of the clearinghouse as an interim measure, pending the establishment of an autonomous clearinghouse. In line with the gradual approach adopted by the treaty, the clearinghouse is regarded as a first step toward the establishment of a payments union and eventually of a monetary union that will be an integral part of the subregional common market. 2 0 The North African

Subregion

The North African subregion—comprising the seven countries Algeria, Egypt, Libya, Mauritania, Morocco, Sudan, and Tunisia—is by far the least active of all African subregions in terms of cooperation initiatives. Only two attempts have been made at the subregional level to establish multilateral arrangements. The first was made by the Maghreb countries (Algeria, Libya, Morocco, and Tunisia) when they set up the Maghreb Permanent Consultative Committee (CPCM) in 1964 to advise the Conference of Ministers of Economic Affairs on issues falling within the conference's jurisdiction. The committee proceeded to set up the specialized subcommittees required for planning, statistics, transport and communications, tourism, employment, industry, and agriculture. In 1970 Libya withdrew from the CPCM. Meanwhile, Mauritania attended the meetings as an observer. The CPCM undertook a number of studies relating to common projects in the above fields; some of them were considered and approved, but very few have been implemented. Since 1976, though, the CPCM has

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PAST EXPERIENCE

come to a virtual standstill as a result of the conflict on the Sahara issue between Algeria and Morocco. The second cooperation attempt was made in 1989 by the same group of countries: a new arrangement called the Maghreb Arab Union (MAU). The union is still in the formative stage. 2 1 Some writers have tried to explain the North African subregion's reluctance to establish multilateral cooperation arrangements. They argue that the countries of the subregion are divided into two groups: the Maghreb countries (including Algeria, Libya, Mauritania, Morocco, and Tunisia) and the others (Egypt and Sudan). Egypt associates mainly with the Arab Mashreq countries, and Libya desires to associate itself with Egypt. Sudan is inclined to deal with the countries of East and Central Africa, whereas Mauritania belongs more to West Africa than North Africa. The sociopolitical structures of the proper three Maghreb countries—Algeria, Morocco and Tunisia—underlie their failure in boosting their cooperation. 2 2 The reluctance of these countries to have their own multilateral cooperation arrangements can largely be attributed to the "dual identity" of the subregion. The North African countries belong simultaneously to the Arab world and to Africa. This double affiliation has substantially influenced intra-subregional cooperation, e.g., by retarding the establishment of proper subregional arrangements. As signatories to the older Arab arrangements—such as the Arab League (1945), the Defence and Economic Cooperation Treaty (1950), and Arab Economic Unity (1957), to mention only a few—the North African countries probably have not found it necessary to create similar subregional ones. In addition, complicated political dynamics, a common phenomenon in the Third World (particularly in East Africa before 1981), have had a strong adverse effect on cooperation initiatives among these countries. Nevertheless, this does not mean that intra-subregional cooperation is absent outside the Arab arrangements. It has in fact been present all along, but at the bilateral rather than subregional level. This approach was encouraged and recommended by the North African Subregional Committee of the Association of African Central Banks (AACB) at a meeting held in Toronto, Canada, on 8 September 1987 to review the question of monetary cooperation in the subregion, particularly with regard to the creation of a payments union. As a first step, the committee decided to move in the direction of creating flexible payments arrangements on a bilateral basis before moving on to subregional payments arrangements.

Notes 1. See the introduction. 2. Hoskyns, C., "Pan-Africanism and Integration."

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3. Ouattara, A., "Study on African Systems of Payments." 4. On the history of economic cooperation in West Africa, see: Asante, S.K.B., "Regional Economic Cooperation and Integration"; Bhatia, R., The West African Monetary Union; Chileshe, J. H., The Challenge of Developing Intra-African Trade; Ndongko, W. A., "Regional Economic Cooperation in West Africa"; Nemedia, C., "The Experience of WACH"; Okelo, J. E., "Economic and Regional Integration in West Africa"; Robson, P., Integration, Development and Equity; Robson, P., "Performance and Priorities for Regional Integration with Special Reference to West Africa"; Robson, P., "Problems of Integration Between Senegal and Gambia." 5. The countries are Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. 6. ECA, Répertoire des organisations inter-gouvernmentales de l'Afrique de l'Ouest. 7. This union was known as Union Monétaire de l'Afrique de l'Ouest (UMAO). 8. The Central African countries are Angola, Burundi, Cameroon, the Central African Republic, Chad, Congo, Equatorial Guinea, Gabon, Rwanda, Säo Tomé & Príncipe, and Zaire. 9. On UDE and UDEAC, see: ECA, "Rapport sectoriel de la mission d'évaluation de l'UDEAC"; Jalloh, A. A., "Foreign Private Investments and Regional Political Integration in UDEAC." Robson, P., Economic Integration in Equatorial Africa"; 10. On ECCAS see Diouf, M., Intégration économique, perspectives africaines. 11. On BEAC see Barthélémy, B., "Union monétaire et intégration économique en Afrique Centrale." 12. On CACH see CACH, "The Experience of Central African Clearing House." 13. On CEPGLsee Grands Lacs, "Trimestriel d'information de la CEPGL." 14. The other eighteen countries are Botswana, Comoros, Djibouti, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Somalia, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe, Namibia, and Eritria. The last two have recently been included after gaining their independence. 15. On the detailed history of the East African Common Market and the East African Economic Community, see: Diouf, M., Intégration économique, perspectives africaines; Hazlewood, A., "Economic Integration in East Africa"; Ndegwa, P., The Common Market and Development in East Africa; Niakimwe, K., The East African Community; Nyunya, J. D., "The East African Community." 16. See Onoh, J. K., Money and Banking in Africa. 17. On SACU see Chileshe, J. H., The Challenge of Developing Intra-African Trade. 18. R. H. Green drew my attention to the fact that the structure agreement was formally adopted between 1983 and 1985. 19. On SADCC see: Barry, A. J., Aid Cooperation and Aid Effectiveness;

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Bowen, B., "The Southern African Development and Coordination Conference"; Green, R. H., "Building Economic Regionalism in Sub-Saharan Africa"; Muliasho, D. C , SADCC: A New Approach to Integration; Rossen, S., Aspects of Economic Integration in Africa; Simba, I., and Wells, F., Development Cooperation in Southern Africa and Procedures; Wangwe, S. M., "A Comparative Analysis of the PTA and SADCC Approaches to Regional Economic Integration." 20. On the PTA see: Chanthunya, C. C., and F. Chihwi, "The Experience of the Clearing House of Eastern and Southern Africa"; Martin, G., "The Preferential Trade Area for Eastern and Southern Africa"; PTA Clearing House Executive Secretary's Report; Reserve Bank of Zimbabwe, PTA Multilateral Clearing Facility. 21. On regional cooperation in North Africa, see: Baurenane, N., "Integration in the Maghreb"; Chileshe, J. H., The Challenge of Developing Intra-African Trade, pp. 174-176. Institut Islamique de Recherche et de Formation de la Banque Islamique de Développement, La coopération économique entre les pays du Maghreb, pp. 85-94; 22. Chileshe, J. H., The Challenge of Developing Intra-African Trade, pp. 174-176.

3 REAPING THE WHIRLWIND

Notwithstanding the multitude of cooperation schemes, their outcome has been extremely disappointing. So many arrangements have collapsed or stagnated. Those arrangements that have managed to survive have faced a myriad of problems, and many of them have not even taken off. In this text, only the prominent examples in each subregion will be considered.

West Africa The Economic Community of West Africa The ultimate objective of the Economic Community of West Africa (CEAO) is to foster the economic and social development of its member states, mainly through the following measures: • The establishment of a common external tariff (CET) within twelve years (i.e., by January 1985); • The introduction of free trade in products of local origin that have not undergone industrial processing (produits du cru); • The institution in approved cases of a special preferential import duty regime, the regional cooperation tax (TCR), for traded manufactured products that originate in member countries; • The preparation, according to a stated timetable, of a draft program of industrialization; • The preparation of draft statutes for multilateral cooperation and proposals for harmonizing fiscal incentives for investment; and • Consideration of joint policies and measures in other sectors of economic activity. The CET, which was to be established by January 1985, is not yet in sight. Only certain preparatory measures have been adopted, including the 23

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introduction of a common tariff and statistical nomenclature, the simplification of the indirect tax system, and the adoption of a uniform customs duty of 5 percent. Even the simplest objective of eliminating nontariff barriers, and specifically quantitative restrictions upon intragroup trade, has not yet been fully attained. Each member state operates certain trade restrictions, such as import certificates, particularly on textile products and even on some produits du cru. The only area of success relates to the dutyfree circulation of most produits du cru and preferential treatment for industrial products originating in the region. With respect to the TCR, both Senegal and Cote d'lvoire have been reluctant to expand the system because together they finance the bulk of the requested contributions. So far there has been no fiscal harmonization. Although the treaty requires member countries to seek to harmonize fiscal incentives and to submit proposals to the conference of heads of state, to date nothing has been reported to have been attempted. Some measures were supposed to be taken concerning the adoption of regional industrial policy within three years after the treaty came into effect, but nothing has been done to date. The result is that specialization in the production of member countries has never materialized. Industrial development has continued to be independently initiated in member states, and industries are largely duplicated, particularly in activities (such as textiles) that have substantial capacity. Finally, in the other fields of economic cooperation, notably agriculture and transport, progress has been negligible. 1 The Mano River Union The objectives of the Mano River Union (MRU) are to expand reciprocal trade by eliminating existing barriers, to promote cooperation for the expansion of international trade, to create conditions favorable to expanding the production capacity of the area (including the progressive development of a common protective policy and cooperation in the creation of new productive capacity), and to ensure a fair distribution of the benefits of economic cooperation. 2 The union was envisaged to be established in two phases. Phase one involved liberalizing mutual trade in goods of local origin by eliminating tariff and nontariff barriers, harmonizing tariff rates and fiscal incentives for freely traded goods, and adopting supportive cooperation measures for increasing the output of agricultural and manufactured products of local origin. Phase two involved establishing common industries and other measures leading to accelerated economic growth and social progress of the member countries. However, no timetable or plan of action was specified for this stage. The harmonization of customs and excise legislation, administration, and procedures was reported to have been in progress. In 1977 common

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25

classification, valuation, and statistical codes and uniform rates on 95 percent of the tariff items on the schedules were adopted. By 1980 fewer than one hundred of the one thousand main customs headings remained to be harmonized. An agreement was also reached in 1980 on the harmonization of about two-thirds of the excise rates, but progress on the rest proved to be difficult. It was therefore decided in January 1981 not to apply this third requirement. 3 Some have argued that the achievements in terms of tariff harmonization are less substantial than the figures suggest. Member countries still maintain certain other charges that are equivalent in effect to import duties. Besides, nontariff barriers of various kinds—such as Sierra Leone's system of import and export licensing, border control procedures, documentation requirements, and export duties—have not been eliminated. A third important limitation involves the lack of relevant provisions for the free circulation of third-country goods inside the union, as well as for the transfer of duties on any imports consumed in a country other than that which originally imported them. It was therefore contended that, although the main legislative and administrative procedures of the customs union have been established, much remains to be done before it becomes fully effective. 4 The union does not currently have a common investment code governing the incentives that may be offered to foreign investment. 5

The Senegambian Confederation The Senegambian Confederation agreement of December 1981 provides for, among other things, the development of an economic union that has a simple customs union and a monetary union as the initial stages. This agreement has never been implemented. Eventually, in 1989, the president of Senegal acknowledged the standstill of the union and suspended the agreement. Later, the president of The Gambia confirmed that suspension.

The Economic Community of West African States Even ECOWAS, one of the best integration arrangements in the continent, is reported to have been proceeding unsatisfactorily. Its main objective, based on a treaty signed in 1975, is to promote economic development by establishing a common market and harmonizing economic policies, including agricultural policies, industrial development plans and incentives, and monetary policies. It also advocates cooperation for the development of energy and mineral resources and for the joint development of infrastructures. These objectives were envisaged to be achieved through, among other things, the establishment of a customs union in three stages over the first fifteen years since the treaty came into effect. The first step was a two-year

26

PAST EXPERIENCE

standstill period for tariffs, during which member countries were to refrain from imposing new customs duties or taxes and from increasing existing ones. The second stage involved having the member states reduce and ultimately eliminate their import duties on intracommunity trade over the next eight years. The common external tariff, the third stage, was to be established during the succeeding five years. The substantive implementation of the treaty commenced four years later, in May 1979. The second stage was therefore to begin in May 1981. To this effect, an ECOWAS statistical standard and tariff nomenclature for revenue loss were agreed upon. Member countries also embarked on systematic elimination of tariff and nontariff barriers and subsequently decided to abolish all duties and taxes on unprocessed goods and traditional handcrafts. However, member countries could not meet the deadline. Tariffs on all categories of goods were supposed to be eliminated completely by 1989 in accordance with the timetable, but this has not yet been achieved. Nontariff barriers scheduled for complete elimination by May 1985 were left to the discretion of member countries. It was only at the 1989 summit meeting in Ouagadougou, Burkina Faso, that the ECOWAS authority adopted a proposal to initiate trade liberalization, effective after 1 January 1990. This proposal allows for a pilot scheme of free trade for twenty-six industrial projects across the sixteen member states. However, this has been criticized as mere window dressing because the scheme can take off only if the countries whose industrial enterprises and products were approved pay up the duties they owed to the ECOWAS Fund as of 31 December 1989. The member states have yet to pay. In addition, the arrangement is reportedly not appealing to most private-sector participants, and the matter of establishing a common tariff structure is yet to be squarely addressed. 6 Provisions were also made for the free movement of persons. To this effect, a protocol on the free movement of persons and their right to residence and establishment was considered and signed by the authority in 1979, granting community citizens the right to enter, reside, and establish themselves in the territory of member states. This was to be achieved in three stages: the right to entry and the abolition of visas, the right of residence, and the right of establishment. The first phase was implemented in 1980 but was followed by problems leading to the closure of the Ghanaian borders and the expulsion of alien citizens of ECOWAS member states in Nigeria. Nevertheless, the authority approved the implementation of the second phase, but this has not received the support of some countries. 7 Similarly, no significant progress has yet been made on measures leading to industrial and fiscal harmonization, an important aspect of the treaty. Thus, no harmonized investment code exists to date in any area of ECOWAS economic activity, whether it be the manufacturing sector, the agricultural sector, or the extraction of natural resources. ECOWAS also

REAPING THE WHIRLWIND

27

has not embarked on serious industrial harmonization because it is awaiting the completion of studies on the subregion's industries. 8

Central Africa Slack progress has also been common in Central Africa.

The Equatorial Customs Union The 1959 convention establishing the Equatorial Customs Union (UDE) explicitly called the arrangement a "customs union"; however, it was intended to be more than a common market in that it was to involve free movement of products and factors, a common external tariff, and fiscal harmonization. There were also provisions for the establishment of certain central organizations to replace the former high commission administrative services, as well as the continued common operation of rail and river transport services, posts and telegraph stations, and certain other services. The revenue from import duties and from taxes on income generated by intragroup trade were to be distributed among the member countries according to a consumption criterion; i.e., all import duties and the proceeds from the tax imposed on intragroup trade in locally produced manufactured goods were to be paid to the state in which the goods were declared to be consumed. A solidarity fund was set up to help compensate member countries for differences in the benefits they derived from the union. To this end, the fund received 20 percent of all common import duties levied by the offices operated by the common customs services; it distributed them among member states according to agreed-upon rules. In practice, however, taxes could not be harmonized. Although the grand council laid down a uniform basis for assessing the liability of various direct taxes throughout the federation before 1960, the tax rates themselves continued to be fixed by each territory. By 1960 each country had introduced its own code for both direct and indirect taxation, which resulted in some divergence in the rules of charge and in further differences in tax rates. The common external tariff could not be adopted, and consequently there was no wholly uniform tariff. This nonuniformity resulted from the imposition of two groups of taxes: those levied by the customs services on behalf of and for the benefit of the countries concerned, and those levied by the internal tax administration of each country. Suspensions or exemptions from the general tariff in all member countries produced further differences. The movement of labor, though not formally discouraged, was hindered by social and political considerations. 9

28

PAST EXPERIENCE

The Customs Union of the States of Central Africa The December 1964 treaty establishing the Economic and Customs Union of Central African States (UDEAC) was more ambitious than the UDE convention of 1959 because it aimed at creating an economic union. It therefore retained almost all the same provisions of the UDE convention, with minor changes necessitated by the inclusion of Cameroon; in addition, it included a new part dealing with the harmonization of development plans. Specifically, the first part of the treaty dealt with the institutions of the union similar to those of the UDE. The second part considered the operation of the customs union, fiscal harmonization, and investment codes. The third contained the innovation concerning a subregional development policy. According to this policy, industrial projects were divided into five groups as follows: 1. 2. 3. 4. 5.

Export industries; Industries serving the market for only one country and for which no economic principals are sought in the other member countries; Industries that serve only one market but would affect an established or projected industry in another state; Industries for which the market is limited to two states and for which bilateral harmonization arrangements are sought; and Industries concerning more than two states and for which harmonization at the UDEAC level is sought.

Projects in the first two categories might be set up without reference to the union, but were not permitted to market their products in other states. For projects in category 4, a common report was to be made jointly by the states concerned to the other states of the union through the secretarygeneral. For industries in categories 3 and 5, full information had to be sent to the secretary-general before any decision or understanding could be reached on its establishment. This part also included two important provisions with respect to development harmonization. The first requested the secretary-general to prepare a plan for industrialization in the union for projects in category 5, to be approved by the council. The second provision allowed member countries of the union to restrict the entry of products of other states that were not subject to harmonization or placed under the taxe unique regime. The fourth and fifth parts of the treaty, dealing with the taxe unique, applied to industries in category 5 and with the free movement of production factors, retained the same provisions of the UDE convention. 10 Progress on the implementation of the treaty was not satisfactory in the early years. Intragroup trade, though growing, was relatively small and

REAPING THE WHIRLWIND

29

was conducted only in a few commodities—sugar, cigarettes, and beer— for which trade could continue in the absence of a common market. Congo and CAR were not quite satisfied with the centralized administration of the common customs service. Another common service, the Equatorial Posts and Telecommunications Agency, was disbanded, and each country controlled its own post office and savings bank. Moreover, most member countries have established their own internal airlines but have continued to participate with the majority of other French-speaking countries in jointly owned Air-Afrique. Even with respect to the operation of the common market, each country tended to avoid the need to obtain agreements on changes in import taxation by importing special internal consumption taxes. 11 It was because of these discouraging results that the UDEAC treaty was revised on 7 December 1974 at Yaounde, Cameroon. The revised treaty aimed at speeding up the concerted efforts to create a customs union, a common market, and an economic union. To this effect, the treaty emphasized the provisions of the old treaty for (1) the adoption of a common external tariff; (2) liberalization of intragroup trade inproduits du cru for all tariffs and other trade restrictions, with a unique tax imposed on manufactures; (3) fiscal harmonization, particularly with respect to taxes on commercial and industrial profits, turnover taxes, taxes on income from mobile values, and taxe unique; (4) harmonization of development plans; and (5) promotion of a common industrialization policy buttressed by three pillars: an investment convention, establishment of a Central African Development Bank, and the free movement of persons. 12 The implementation of the newer treaty also faced a number of problems, and the associated instruments have not worked properly. With respect to the customs union, the taxe unique was introduced as a means of achieving the twin objectives of liberalizing intragroup trade in manufactures, and at the same time making up for customs revenue losses. The proper imposition of this tax was handicapped by certain problems, such as how to harmonize rates by country and by industry, the classification of raw materials, and the coexistence of other privileged systems (e.g., investment codes and preferential tariffs) that allowed firms to import similar items at the reduced rate of 5 percent. These difficulties resulted in member countries imposing different complementary taxes, which made it difficult to unify domestic markets. Hence, it was difficult to boost intraUDEAC trade, which increased by only 2 percent in 1976/77 as opposed to 28.4 percent in 1965/66, and registered a negative growth rate of - 3 9 percent in 1978. In contrast, extracommunity trade, particularly with developed countries, increased by 26 percent compared with 6.4 percent in both 1976/77 and 1965/66. 13 It also made it difficult to agree on a common external tariff, with the result that common customs offices virtually

30

PAST EXPERIENCE

disappeared and the solidarity fund has not functioned as initially anticipated. In short, a complete free trade area does not exist within UDEAC, nor does a common tariff on trade with third parties. Thus, progress toward realizing a complete customs union within UDEAC has halted, even though the initial promise was rather high. 14 The economic union, which required harmonizing development plans and promoting a common industrialization policy, did not move forward either. A harmonization of development plans required member countries to exchange all the documents relating to their respective economic situations and plans through the secretary-general, who was to study these documents critically, eliminate any inconsistencies, and come up with concrete recommendations for the council of heads of state and government. In practice, though, no plans were received by the secretary-general. Each member country preferred to handle its own development policy as though it were not a union member. With respect to the common industrial plan, an investment code was already prepared but never made operational because of a lack of political will, among other things. A convention was also prepared in connection with the free movement of persons, but it has not come into force. 15 The Economic Community of the Countries of the Grand Lakes The Economic Community of the Countries of the Grand Lakes (CEPGL) has not been an exception in terms of its effectiveness as a cooperation arrangement. Its objectives include promoting intragroup trade, allowing free movement of persons and other factors of production, creating activities of common interest, and cooperating in scientific, cultural, military, and other fields. Almost nothing concrete has been done so far to put the projected customs and economic unions into operation. During the first decade after the agreement came into force, efforts were concentrated on identifying those activities of common interest and setting up the relevant institutions, notably the secretariat-general and the development bank, which has not been operational. In 1985 an agreement was signed to liberalize intragroup trade in produits du cru, but it has not been ratified. Another agreement was signed in the same year concerning the free movement of persons and other factors of production, but it has not been ratified, either. 16 The inclusion of the three member countries into the larger community of Central African States (CEEAC) has put the future of the CEPGL in question.

East and Southern Africa The story is invariably the same in the East and Southern African subregion. For quite a number of reasons, notably the dissatisfaction of member

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31

countries with the distribution of the costs and benefits of the arrangement (as discussed later), the proposed common market could not even take off and remained paralyzed until it eventually collapsed in 1977. The Preferential Trade Area The Preferential Trade Area (PTA), which is equally ambitious, aims at achieving self-sustaining economic growth and developing the economies of the subregion. The attainment of this objective is conceived in the framework of an economic community involving, in addition to a common market, harmonization of the national economic policies of the member countries. Expectedly, the emphasis is placed on the establishment of a customs union in two stages. 17 The first phase involves a gradual reduction and eventual elimination of customs duties and nontariff barriers, and the second is devoted to the gradual evolution of a common external tariff. Articles 13 and 29 of the treaty require that the first phase be completed within a period of ten years after the treaty came into force, i.e., by the end of September 1992. The groundwork for starting the process of removing tariff and nontariff barriers to intra-PTA trade was completed in December 1983, and the actual process of removing them was to start on 1 July 1984. However, only four countries (Burundi, Uganda, Zambia, and Zimbabwe) fully adhered to the approved timetable and complied with the requirement to publish tariff rates between July 1984 and July 1985. The passive attitude of the other member countries, which delayed the implementation of the program of tariff reduction by four years, led the council to decide to postpone the deadline for the complete elimination of tariffs to the year 2000, instead of 1992 as initially scheduled. Accordingly, member countries were required to reduce their intra-PTA tariffs by 10 percent a year every other year between October 1988 and October 1996. Subject to a review in 1996, the remaining 50 percent of the tarrifs are to be eliminated in two stages: 20 percent in 1998 and 30 percent in 2000. As of June 1989 only seven member countries had published the initial tariffs, and only six had published the first further tariff reduction. In view of this situation, the PTA authority, at its seventh meeting, in December 1988, directed that member states that had not yet published the tariff rates should publish both the initial tariffs and the first further tariff reduction of 10 percent by 31 January 1989.'"

North Africa As indicated before, the countries of the North African subregion have not tried to establish traditional integration schemes at the subregional level.

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PAST EXPERIENCE

All are members of the older and similar Arab arrangements, which in turn have not escaped similar difficulties.

Notes 1. For more on CEAO's performance, see: Ezenwe, U., "Evaluating the Performance of West African Integration Movements"; Joshua, F. T., "Experience of African Regional Economic Integration"; Robson, P., Integration, Development and Equity. 2. Ezenwe, U., "Evaluating the Performance of West African Integration Movements." 3. Robson, P., Integration, Development and Equity. 4. Ibid. 5. Ezenwe, U., "Evaluating the Performance of West African Integration Movements." 6. Okelo, J. E., "Economic and Regional Integration in West Africa." 7. Ibid. 8. For details see: Asante, S.K.B., "Regional Economic Cooperation and Integration"; Ezenwe, U., Evaluating the Performance of West African Integration Movements; Okelo, J. E., "Economic and Regional Integration in West Africa." 9. See Robson, P., "Economic Integration in Equatorial Africa." 10. For details see: Jalloh, Abdul A., "Foreign Private Investments and Regional Political Integration in UDEAC"; Robson, P., "Economic Integration in Equatorial Africa." 11. For further details, see Robson, P., "Economic Integration in Equatorial Africa." 12. Ibid. 13. ECA, "Rapport sectorial de la mission d'évaluation de l'UDEAC." 14. Jalloh, A. A., "Foreign Private Investments and Regional Political Integration in UDEAC." 15. For more on the implementation of the economic union, see: ECA, "Rapport sectorial de la mission d'évaluation de l'UDEAC"; Jalloh, A. A., "Foreign Private Investments and Regional Political Integration in UDEAC." 16. For further details on the performance of CEPGL, see: Diouf, M., Intégration économique, perspectives africaines; Grands Lacs, Trimestrial d'information de la CEPGL. 17. This is specified in Article 12 of the treaty. 18. Martin, G., "The Preferential Trade Area for Eastern and Southern Africa."

PART 2 THE ROADS TO FAILURE

4 PURPOSELESS STRATEGY

There is a consensus among economists, Africans and non-Africans alike, that a major factor responsible for the poor return on cooperation efforts made in Africa over the past three decades has to do with the integration strategy adopted by African groupings. Almost all of them have been modeled on the classical European Economic Community (EEC) prototype, which is designed for developed countries. The model's underlying assumptions are far from relevant in the African context. All the countries of the region are producing raw materials that seldom have subregional markets or tariff problems on the international markets. The manufacturing sector is very small in most African countries and almost nonexistent in some of them. Moreover, that sector is dominated by multinationals, which makes it extremely difficult, if not impossible, for most domestically produced manufactures to qualify for community treatment. This fact has rendered trade liberalization programs virtually ineffective. Even those products that can meet the equity participation requirements cannot be traded duty-free, in light of the inability of most African countries to do away with customs revenue and the distributional problems associated with trade liberalization. The scarcity of foreign exchange makes things much worse. Being in desperate need of foreign exchange, African countries have not been able to pay for their tiny intraregional imports, let alone honor other obligations; nor have they been able to develop adequate credit facilities at the regional level to help alleviate difficulties with payments. Ironically, the problem has circumscribed the very subregional clearinghouses that have basically been established to get around it. This chapter highlights the classical integration model, and then discusses the major obstacles to that model's workability in the African context.

The Classical Laissez-Faire Model The exigencies of the Cold War between the West and the East called for the formation of military alliances as safeguards against future external 35

36

R O A D S TO FAILURE

threats to their respective security. Given the traditional rivalries among member countries, goodwill alone was not enough to keep up military alliances. Other supporting arrangements that raised the cost of entering conflicts among partners were thus highly needed. In Western Europe, the E E C was created, representing what has become known as the classical laissez-faire integration model. The model is basically in favor of an evolutionary outward-looking integration. Central to it are three main ideas: incremental ism, the use of trade as a driving force of integration, and reliance on market forces as a pertinent integration mechanism. Incrementalism, by definition, implies a step-by-step approach to economic integration. The first step, involving a gradual reduction and eventual elimination of tariff and nontariff barriers to intragroup trade (i.e., the formation of a free trade area), is to be followed in due course by the establishment of common external tariffs (via a customs union). The third phase, a common market, ensures the free movement of persons and other factors of production; this paves the way for full economic union in the fourth stage, involving complete unification of different economic policies. Underlying the model is an implicit belief that freeing intragroup trade, coupled with regional protective policies, will eventually lead to an efficient allocation of the resources available to the member countries, thereby maximizing global welfare for the region as a whole. There is also faith that the market forces can, if left free, integrate "quietly and impersonally while Prime Ministers are in bed." 1 The premise that the classical model is inherently beneficial has been cast in doubt by some scholars. The long debate on the issue has developed into a voluminous literature constituting what is currently known as the customs union theory, a branch of tariff theory dealing with the effects of geographically discriminatory changes in trade barriers. Using a Ricardian model of production that focuses on the welfare effects of changes in the location of production, J . Viner began the debate by challenging the old belief that a customs union, representing a step toward free trade, will increase world welfare even if it does not lead to a world welfare maximum. By introducing the now familiar concepts of trade creation and trade diversion, Viner demonstrated that there can be no general presumption as to the welfare orientation of a customs union. 2 Trade creation effects, brought about by the union-induced shift from the consumption of highercost domestic products in favor of lower-cost products of the partner country, increase welfare; whereas trade diversion effects, caused by the unioninduced shift from lower-cost external goods to higher-cost partner ones, decrease welfare. The net gains from a customs union are therefore a function of the relative strengths of the forces causing trade creation and trade diversion; thus careful empirical investigation is called for. Attempts have been made to specify the conditions in which a customs union might be beneficial. An often-cited example in this context is the

PURPOSELESS STRATEGY

37

case in which all partner countries are producing the same commodity under tariff protection. In this case the customs union ensures that the least inefficient country will capture the union market, and there will be trade creation. The benefits are claimed to be significant if the original tariff rates in the trade between the partner countries are relatively high, and when the initial production and consumption structures, though similar, indicate marked cost differentials, so that gains from specialization may be anticipated. Prospects are equally bright when the total volume of foreign trade of partner countries is low, because imports from outside the union will be less than the purchases of domestic commodities, which means that potentials of local markets are promising. Beneficial effects are also likely when, given a country's volume of foreign trade, the proportion of trade with partner countries is greater than the proportion of trade with the rest of the world. In this context the size of the integration area is relevant. The larger the size of the grouping, the greater the combined share of the associated countries in terms of world trade and total population. This argument is self-evident, considering that in the extreme case of an integration of all trading nations there would be no effects other than those of trade creation. 3 Finally, low transportation costs may improve the chances for prosperity-increasing integration effects. A customs union is therefore likely to increase welfare when member countries are geographically close to each other. Attractive as it may be, the classical model has been criticized as being less relevant in the context of developing countries. The conditions that favor trade creation, as mentioned above, are the opposite of those typically found in developing countries. 4 Developing countries suffer from structural disequilibria and, particularly, the lack of well-developed manufacturing sector. Invariably, they produce primary commodities, and foreign trade represents a high percentage of gross national product (GNP). Moreover, the bulk of foreign trade is conducted with developed countries, whereas trade among developing countries is extremely low. Reallocation gains are therefore not expected to accrue from these unbalanced patterns of production and foreign trade. Integration can at best be neutral, and hence useless, when neither country is producing a given commodity. In this case, the removal of tariffs on trade between trading nations causes no change in the pattern of trade in this commodity; each country will continue to import it from the cheapest possible source outside the group. The classical integration process is likely to do more harm than good to partner countries. Asymmetric internal relations are likely to be reinforced by the two notorious problems usually associated with the freemarket forces: the polarization of development and the problem of unequal distribution of the costs and benefits of integration among member countries. The likely positive effects of trade creation and industrialization often accumulate in certain countries because of infrastructural advantages, higher income levels, or better possibilities of forward and backward

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ROADS TO FAILURE

linkage effects; other partners are virtually reduced to the role of a mere market for the manufactures of their more industrialized partners. The clustering of industries is in turn accompanied by unbalancing movements of capital and labor, a situation that eventually, through cumulative effects, increases and reinforces divergencies between the more advanced and less advanced member countries. Most of the benefits go to the member countries where production is located, and other partners face the additional difficulty of losing customs revenue by this import substitution on a subregional basis. This has been in evidence in practically all regional alliances. For example, Kenya has benefited most from EAC; Cameroon from U D E A C ; Trinidad and Tobago from the Caribbean Community Council; Argentina, Brazil, and Mexico from L A F T A ; El Salvador and Guatemala from the Central American Common Market ( M C C A ) ; and Colombia and Venezuela from the Andean Group. 5 More to the point, the net gains may turn out to be negative for the region as a whole, particularly where production is dominated by multinational companies. In this case, all or most of the benefits go to the foreign sector, and external dependence is thus further reinforced. These resulting disequilibria create forces of instability and disintegration, which may eventually convince less developed member countries to go it alone. This is a common occurrence in most alliances among developing countries. For example, the Andean Group is a consequence of disproportional development within L A F T A , and for similar reasons, U D E A C gave rise to U E A C . The foundation of the East Caribbean Common Market within the Caribbean Free Trade Association was also a case in point. 6 Some innovations were made in vain to deal with these distributional problems. These mainly involved compensatory and corrective measures, sometimes coupled with other policies of a dirigiste nature, aiming at a balanced development of the region as a whole. The inclusion of such measures was intended to be a compromise to convince losing partners to join integration schemes. The simplest of these measures entail ex post facto adjustment and compensation measures. They involve redistribution of the potential gains from integration among those who are likely to benefit more and those who are expected to benefit less or suffer net losses. The more usual compensatory mechanisms, though, are the establishment of solidarity funds and/or development banks and the granting of fiscal compensation. These measures are not usually considered successful. Other schemes stress certain corrective measures aimed at responding to the more fundamental causes of unequal development in the region. Under such schemes, the more developed partners are required to forgo a certain proportion of their scarce resources to the less developed members, so as to correct the conditions that lead to their disadvantaged position, instead of ceding a

PURPOSELESS STRATEGY

39

proportion of the gains to the losing countries. These measures are in fact some of the most decisive issues of integration, requiring a high level of political commitment; agreement concerning these measures is subject to a long series of negotiations among partners. 7 Partners may go so far as to incorporate agreements on the coordination of investments. Most common are joint ventures, the importance of which was underlined by the Group of 77 in Caracas, Venezuela, in May 1981. Other forms include licensing systems as in the EAC, or so-called integration industries as in the MCCA. 8 Finally, direct foreign investment may be controlled so as to reduce external dependence. It includes such measures as designating certain sectors of the economy in which foreign participation may be limited or totally excluded, regulating technology transfers, and/or defining the operation conditions of transnational companies in member countries. Being of a more dirigiste nature, these types of measures require a higher level of political commitment, which in practical terms is difficult to achieve. 9 Finally, the model is criticized on the grounds that it overemphasizes technical aspects and downplays the political environment. The model is based on an implicit assumption that what is recommended by technocrats will easily be approved by politicians. This might hold true in the case of developed countries, but it is hardly conceivable in developing countries. Because most of these countries have achieved independence only recently, political leaderships jealously guard their sovereignty and are unwilling to reduce the power and authority of the state. Higher priority is generally given to promoting national integration at the expense, if necessary, of regional integration. This has been reflected in the functioning of regional groupings in many respects, not the least by the underrepresentation of the governments of member countries at the meetings of most regional organizations. Usually endowed with inadequate negotiating powers, the representatives of member countries are often of low rank and in most cases are not in a position to consider sensitive issues. They can make decisions only on unanimously adopted agenda items; controversial issues remain indefinitely pending. Member countries' commitment to take responsibility for and to act on the decisions made at meetings may be low or even nonexistent. Withdrawals, meeting boycotts, and contribution payment deferrals for political reasons have not been uncommon. Regardless of these reservations on the workability of the classical model in the context of developing countries, almost all African countries have invariably adopted it. The treaties establishing different African groupings invariably provide that the ultimate objective of the grouping is to promote cooperation and development in all fields of economic activity, particularly in the fields of trade, customs, industry, transport and communications, agriculture, natural resources, and monetary affairs, with the aim

40

ROADS TO FAILURE

of raising the standard of living of its peoples, fostering closer relations among its member states, and contributing to the progress and development of the African continent. 1 0 The cooperation arrangements seek to achieve this ambitious objective by liberalizing intragroup trade on a step-by-step basis. Invariably, the liberalization programs begin by removing all tariff and nontariff barriers to intragroup trade (i.e., establishing a free trade area), followed in due course by the establishment of common external tariffs (a customs union), then by freeing the movement of the factors of production (a common market), and finally by the harmonization of economic policies (an economic union). The whole process is left to the influence of market forces, supported by some corrective and compensatory measures. The institutions and instruments used in the liberalization process usually include an authority of heads of state and government, a council of ministers, an executive secretariat, a tribunal, a solidarity fund or development bank, technical and specialized committees, and a clearinghouse. The authority is the supreme organ of the community, charged with directing and controlling the integrative process. The council of ministers consists of representatives of member states and monitors the functioning of the community, making recommendations to the authority on the various executive issues and directing and supervising all subordinate institutions. The executive secretariat serves all the other institutions of the community and performs the main administrative and executive functions. It also initiates and proposes policy measures and programs to the technical commissions and undertakes such other functions as the council may assign to it. The executive secretary is appointed by the authority for a certain period, usually four years, renewable only once. The tribunal interprets the provisions of the treaty, settles disputes referred to it, and ensures the observance of law and justice. Specialized and technical commissions handle such issues as trade, customs, immigration money and payments, industry, agriculture, transport and communications, energy, and social and cultural affairs. The commissions are made up of experts from all member countries whose primary functions are to draw up integration programs in their respective fields of competence and to assess the implementation of the programs. They prepare reports and submit recommendations to the council of ministers through the executive secretary. The tasks of the development bank are (1) to provide financial and technical assistance to promote the economic and social development of member states, (2) to promote trade among member states, (3) to finance projects designed to make the economies of the member countries increasingly complementary to each other, and (4) to supplement the activities of national development agencies of the member states. Some groupings—UDEAC, for instance—do not have a development bank, but instead establish an alternative key institution—for UDEAC, the

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41

Solidarity Fund. In addition to the functions of a development bank, such a fund compensates member countries that suffer losses as a result of trade liberalization or a disadvantageous placement of community enterprises. It is also used to guarantee the foreign investments made in pursuance of the treaty's provisions for harmonization and to facilitate the mobilization of internal and external financing for member countries and the community. Its resources are derived from contributions from the member states, income from community enterprises, receipts from bilateral and multilateral sources and other foreign sources, and all kinds of subsidies and contributions from all sources. One clearinghouse objective is to enable member countries to use national currencies in the settlement of intragroup trade, thereby economizing on the use of scarce foreign exchange.

Structural Disequilibria African countries are well-known producers of primary commodities. On average, between 50 and 60 percent of the gross domestic product (GDP) is accounted for by the primary sector. The ratio varies, of course, from one country to another. The highest shares of such commodities in terms of the GDP are in Libya (76 percent), Uganda (75 percent), Angola and Nigeria (70 percent each), and Burundi, Gabon, Ghana, and Guinea (65 percent each). The lowest GNP shares are in Djibouti (14 percent), Seychelles (20 percent), and Morocco (33 percent). By contrast, the manufacturing sector is responsible for a very small percentage of the GNP in Africa—about 10 percent on average. However, the percentage declines to nothing in Säo Tomé and Principe, 2 percent in Equatorial Guinea, 3 percent in Guinea and Guinea-Bissau, and 4 percent in Botswana, the Comoros, Djibouti, and Uganda. The sector surprisingly captures 50.5 percent of the GDP in Zambia; 26 percent in Zimbabwe and 23 percent in Swaziland and Mauritius (all in Southern Africa); 20 percent in Côte d'Ivoire; and 18 percent in Morocco. 11 In terms of employment, the overwhelming bulk of the African labor force is similarly concentrated in the primary sector. The figure shoots up to more than 90 percent in Burundi and Rwanda and lies between 80 and 90 percent in Burkina Faso, Comoros, The Gambia, Guinea-Bissau, Mali, Mozambique, Niger, Senegal, Tanzania, Uganda, and Kenya. The ratio ranges from 60 to 80 percent in Angola, Benin, Cameroon, CAR, Congo, Côte d'Ivoire, Equatorial Guinea, Ethiopia, Gabon, Guinea, Liberia, Malawi, Nigeria, Sierra Leone, Somalia, Sudan, Swaziland, Togo, Zaire, Zambia, and Zimbabwe. Only in Algeria, Libya, and Mauritius does the sector account for a low share of employment: 20 percent, 11 percent, and 23 percent, respectively. The manufacturing sector accounts for as low a

42

ROADS TO FAILURE

share as 2 percent in Rwanda, 3 percent in Niger, and 4 percent in CAR, Cote d'lvoire, Lesotho, and Madagascar; and as high a percentage as 28 percent, 25 percent, 20 percent, and 16 percent in Tunisia, Egypt, Congo, and Algeria, respectively. 12 African agriculture produces mainly cash crops basically destined for European markets, notably cotton, cocoa, coffee, tea, and sugar cane. Minerals and metals are also produced for industrial countries as raw materials. Manufacturing industries entail no more than assembling activities in most cases and, moreover, are dominated by multinationals. The manufacturing sector depends heavily on imported inputs, particularly equipment, technology, and technical expertise. The bulk of the tertiary sector, which captures about one-third of the GDP on average in most countries, comprises low-grade retail trade as well as other services of generally poor and unskilled labor. Structural disequilibria have had the effect of making African countries less useful, or perhaps useless, to one another, as indicated by the heavy dependence on developed countries, particularly the former colonial metropoles, and the very low level of intraregional trade. Dependence, as is well known, manifests itself in commodity centralization and geographical concentration of external trade. Primary commodities are reported to account for about 94 percent of the continent's total exports, whereas manufactures represent roughly two-thirds of the value of the regional imports. Even within the primary commodity group, only a few key exportables dominate African exports: crude oil, copper, coffee, cocoa, sugarcane, groundnut, palm oil, tea, cotton, and phosphate. The relative importance of these products has varied over time. In 1960, cotton, copper, cocoa, and coffee topped the list, accounting for 12.3 percent, 9.9 percent, 7.5 percent, and 6.9 percent, respectively, of Africa's total exports. Crude oil has come to the fore since the early 1970s, with a high share of almost one-third. The share continued to increase to reach approximately threefourths of total exports in the 1980s. 13 By the end of the 1980s, some primary commodities were reported to have contributed 80 percent to the continent's total exports. 14 An analysis of the exports of each country reveals a greater lopsidedness in the structure of African exports. For example, in the 1980s crude oil accounted for almost 95 percent of the export earnings of Libya, 97 percent of Nigeria's, about 85 percent of Algeria's, 80 percent of Gabon's, and 83 percent of Congo's. Copper brought in 87 percent of Zambia's total export earnings and 58 percent of Zaire's. Coffee provided 80 percent of Burundi's, 60 percent of Ethiopia's, 75 percent of Rwanda's, and 98 percent of Uganda's. Cotton represented 45 percent of the total value of exports from the Sudan, 50 percent from Chad, 40 percent from Mali, and 44 percent from Burkina Faso. Cocoa was responsible for 50 percent of Ghana's total exports. Iron ore accounted for 60 percent of Liberia's total

PURPOSELESS STRATEGY

43

and 4 0 percent of Mauritania's. Diamond represented 8 0 percent of Botswana's total and 4 0 percent of CAR's. Uranium accounted for 8 0 percent of the total exports of Niger, and sugar was responsible for 4 0 percent of Mauritius's. 15 In terms of geography, relevant figures demonstrate that African trade is conducted almost entirely with developed market economy countries. Such trade accounts for more than 80 percent of Africa's exports and more than three-fourths of its total imports. This phenomenon is of course well explained by historical factors. The former colonial metropoles monopolized the trade of their colonies and structured their economies so that the colonies would specialize in the production of primary commodities. 16 External dependence is coupled with, and at the same time accounts for, the alarming low level of intra-African trade. Over the 1960s, intraregional trade represented about 6.6 percent of Africa's trade, which further declined to about 4.5 percent by the end of the 1980s. This downward trend was also reflected in the declining rate of growth compared with the growth rates of world trade and Africa's trade. Whereas world trade expanded by 14.8 percent and Africa's trade by 14.2 percent over the 1960s and 1970s, intra-African trade grew by only 11.8 percent. These figures mask wide disparities among individual countries. For example, in 1990 Sâo Tomé & Principe imported 0.1 percent o f its total imports from African countries, Libya 0.3 percent, and Angola, Ethiopia, Kenya, Liberia, Morocco, and Nigeria less than 2 percent each. By contrast, the percentage goes as high as 6 2 percent for Equatorial Guinea, 40.2 percent for Malawi, 33.3 percent for Burkina Faso, 32.7 percent for Mali, and 30.2 percent for Sierra Leone. Intra-African imports of most other countries vary between 3 and 15 percent of their total imports. 17 An important message of this analysis is quite clear: Trade cannot be used as a driving force of integration in the African context simply because it is conducted on a very limited scale among the countries of the region. Unless serious measures are taken to restructure African economies, trade liberalization programs will remain without practical effect. African economies urgently need to be restructured in such a way as to ensure their interdependence. Crucial in this context is the promotion o f diverse manufacturing industries capable of creating adequate domestic demand for the abundant locally produced primary commodities and, at the same time, providing a sufficient supply of manufactures, which all African countries need badly.

Domination of the Manufacturing Sector by Multinationals Given the structural disequilibria of African economies, which have set a low ceiling on intraregional trade, liberalizing the tiny trade among the

44

ROADS TO FAILURE

countries of the continent has been further handicapped by, among other things, the domination of the small manufacturing sector by multinational companies. According to the rules of origin, which define what products originating from the member countries qualify for trade liberalization within the community, ownership participation by nationals in local manufacturing industries should be no lower than a certain limit (usually 51 percent) in order for the products of those industries to be eligible for community treatment. This provision makes it extremely difficult, if not impossible, for most locally produced manufactures to qualify for community treatment, which renders the liberalization programs of intragroup trade significantly less practicable. As indicated earlier, the manufacturing sector on average accounts for 10 percent of both the GDP and labor force in Africa, compared with 3 0 - 3 5 percent, on average, in developed countries. The sector's share in GDP declines to lower levels in quite a number of countries, and, as mentioned earlier, only six countries have a relatively advanced manufacturing sector: Zambia, Zimbabwe, Swaziland, Mauritius, Côte d'Ivoire, and Morocco. However, despite these few relatively high shares, the sector is very small in absolute terms in the six countries. For example, the gross value added by the manufacturing sector in 1984 amounted to $1.236 billion in Zimbabwe and $2.261 billion in Morocco, each representing 2 - 3 percent of the value added by the UK's manufacturing sector in the same year. The value added by Mauritius's sector in that year reached only $146 million, or barely 0.1 percent of that of the UK's sector. 18 In addition, far fewer than half of the manufacturing industries are owned by nationals in most African countries, with the result that most locally produced manufactures are not eligible for community treatment in almost all African groupings. In ECOWAS, for example, the minimum level of participation by nationals of ECOWAS countries in the equity of industrial enterprises was specified at the May 1980 summit meeting along a progressive scale: 20 percent starting May 1981, 35 percent starting May 1983, and 51 percent starting May 1989. These ratios were amended at the May 1983 meeting, which set national equity participation to 20 percent starting May 1983, 40 percent starting May 1986, and 51 percent starting May 1989. 1 9 Given these equity participation levels, only Nigeria's products, and to a lesser extent those of Ghana, would be eligible for treatment as ECOWAS products. The products of Côte d'Ivoire and Senegal, which account for a high proportion of the manufactured exports among ECOWAS members, would not be eligible for community treatment because national equity participation in local branches of transnational enterprises is still limited. As P. Robson concludes, this ownership provision will ensure that the trade liberalization program of ECOWAS will remain largely without practical effects until

PURPOSELESS STRATEGY

45

the affected member states are willing and able to comply with the ownership provisions, or until these provisions are modified. 2 0 The same situation is being faced in the PTA of the East and Southern African subregion, but it is being handled differently. As a general rule, 51 percent equity holding by PTA nationals was required in order for the product to be eligible for PTA treatment. However, exceptions on this point were provided for in the treaty. The major beneficiaries of these exceptions were the small partner countries, notably Comoros, Djibouti, and Mauritius. National participation level for Comoros and Djibouti was set at a minimum of 25 percent for a five-year period starting in September 1983, to be renegotiated thereafter. For Mauritius, the level was set at 30 percent for a two-year period starting in September 1983, 40 percent for the next two years, and 51 percent by the end of 1989. Immediately after the launching of the operational phase of the PTA (1 April 1984), differences arose among member countries on the implementation of a rule of protocol concerning the rules of origin, with particular reference to the 51 percent equity holding requirement by nationals of the PTA. The council of ministers directed the PTA secretariat to undertake two successive studies on this issue, which were submitted, respectively, at the sixth meeting (July 1985) and the seventh meeting (December 1985) of the council. However, no consensus was reached, and the matter was referred to the PTA authority. At its first extraordinary meeting in May 1986 in Bujumbura, Burundi, the authority finally agreed on the following compromise formula to be applied during a five-year grace period: 1. 2. 3.

Enterprises at a 51 percent level of equity holding by nationals and above would be granted 100 percent preferential treatment. Enterprises between 41 and 50 percent of equity holding by nationals would be granted 60 percent preferential treatment. Enterprises between the 30 and 40 percent levels of equity holding by nationals would be granted 30 percent preferential treatment.

Under this formula, preferential treatment would be granted on a pro rata basis to those countries that had been granted exceptions. 2 1 Given this low level of equity participation by the nationals of African groupings, trade liberalization programs are likely to remain nonfunctioning for many years to come.

The Indispensability of Customs Revenues Even assuming that some locally produced manufactures could probably meet the ownership participation requirements and therefore become eligible

46

ROADS TO FAILURE

for community treatment, a liberalization of trade in these products would be further frustrated by another serious obstacle: the inability of almost all African governments to do away with customs revenues. Given the widespread financial crisis in the continent and the high share of customs duties as public revenues in most countries, African governments find it difficult to abolish tariffs altogether. They either show outright reluctance to reduce, let alone eliminate, tariffs, or they try to get around relevant provisions by levying other charges that have an equivalent effect. This leaves liberalization programs for intragroup trade practically ineffective. Table 4.1 shows that four of the thirty-nine listed sub-Saharan African countries derive about three-fourths of their revenue from customs duties, and nine obtain more than two-thirds of their income from this source. Nineteen countries receive more than half of their tax revenue from customs duties, and thirty-six more than one-fourth. The high share of customs duties in public revenues in most African countries partly explains the laxity in the implementation of liberalization programs for intragroup trade. The PTA is a case in point. Comoros and Djibouti apply various internal taxes on all imported goods (home consumption tax, customs formalities tax, turnover tax, supplementary surtaxes, etc). The two countries insist that these taxes do not constitute customs duties or other charges of equivalent effects, whereas the council of ministers is not of this belief. Both countries have indicated their disagreement by publishing their initial PTA tariff rates either late or not at all and by refusing to reduce and eliminate the other charges that have an equivalent effect. At the 13th Meeting of the Council of Ministers, in November 1988, Comoros informed the council that it would not publish its PTA tariff rates for customs duties by March 1989. Furthermore, it refused to publish its PTA tariff rates with respect to various internal taxes because of the adverse impact this would have on its economy. At the same meeting, Djibouti also informed the council that it would not publish its initial PTA tariffs, maintaining that it did not have customs duties and other charges of an equivalent effect. Djibouti stated categorically that cutting these taxes would drastically reduce its revenues and would have serious consequences on its economy because it relied entirely on revenues from these taxes. After careful consideration of these arguments, the council decided to send a PTA mission to the two countries to discuss both the economic problems these countries were facing and the reasons they were unable to publish their PTA tariffs. 22 The MRU is another example. The member countries still maintain certain other charges equivalent in effect to import duties. Furthermore, nontariff barriers of various kinds have not been eliminated. In Central Africa, the taxe unique was introduced (as previously indicated) to achieve the twin objectives of liberalizing intragroup trade in manufactures and at the same time making up for customs revenue losses. However, the proper

PURPOSELESS STRATEGY

47

Table 4.1 Customs Duties as Percentage of Total Tax Revenue in Sub-Saharan Africa, 1969 and 1980 Import Duties

Export Duties

Total

Country

1969

1980

1969

1980

1969

1980

Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Comoros Congo Ethiopia The Gambia Ghana Guinea Guinea-Bissau Côte d'Ivoire Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Niger Nigeria Rwanda Sâo Tomé & Principe Senegal Seychelles Sierra Leone Somalia Sudan Swaziland Tanzania Togo Uganda Zaire Zambia

56.3 65.1 53.1 23.5 38.0 24.0

62.6 56.4 48.5 21.3 48.9 24.6

5.1 3.4 2.9 17.9 16.6 0.1

1.9 0.5 3.7 31.5 3.8 0.2

61.4 68.5 56.0 41.4 54.6 24.1

64.5 56.9 52.2 52.8 52.7 24.8

38.1 39.7 56.5 30.0 28.5 70.8 16.1 34.8 25.7 36.9 29.5 74.1 32.1 26.6 26.3 38.4 36.1 34.2 15.6 19.9 23.2 10.7 39.1 63.5 36.6 48.5 41.9 25.6 23.6 57.3 19.6 29.5 17.0

33.9 51.8 58.9 36.4 28.3 66.7 19.3 20.1 24.1 37.7 20.0 70.8 40.1 34.1 21.2 32.3 45.5 37.2 15.6 17.1 33.7 11.6 43.6 47.7 38.0 50.9 45.5 52.3 16.3 30.6 3.6 17.8 6.5

3.8 8.0 20.2 5.7 8.1 17.0 29.8 3.0 5.6 19.4 0.4 3.5 0.9 6.8

9.4 10.0 14.0 0.4 26.1 10.2 23.7

41.9 47.7 76.7 35.7 36.6 87.8 45.9 37.8 31.3 56.3 29.9 77.6 33.0 33.4 26.3 45.5 37.2 43.8 20.4 20.1 45.3 28.7 41.9 65.6 47.1 52.7 48.1 25.7 26.7 64.2 38.9 51.3 17.0

43.3 61.8 72.9 36.8 54.4 76.9 43.0 20.1 28.4 50.0 20.0 71.5 40.7 43.1 21.2 36.4 46.2 49.8 20.4 17.2 53.5 27.2 45.4 48.1 55.4 52.8 49.5 53.4 24.1 40.4 74.0 29.4 6.5

—

4.3 12.3 -

0.7 0.6 9.0

—

—

7.1 1.1 9.6 4.8 0.2 22.1 18.0 2.8 2.1 10.5 4.2 6.2 0.1 3.1 6.9 19.3 21.8

4.1 0.7 12.6 4.8 0.1 19.8 35.6 1.8 0.4 17.4 1.9 4.0 11.1 7.8 9.8 70.4 11.6

—

—

Source: IMF, "Taxation in Sub-Saharan Africa." Note; I have tried in vain to update this table. The situation seems to have worsened, or, in the best of circumstances, remained unchanged throughout the 1980s.

48

ROADS TO FAILURE

imposition o f this tax was handicapped by certain problems, such as how to harmonize rates by country and by industry, how to classify raw materials, and how to coexist with other privileged systems (e.g., investment codes and preferential tariffs). T h e s e difficulties resulted in member countries imposing different complementary taxes. T h e situation is compounded by the inability o f the compensatory arrangements to compensate member countries for revenue losses. As will be shown later on, solidarity funds that lack their own resources depend instead on contributions by member countries, which in most cases are virtually unable to honor their obligations, given their worsening financial positions.

The Scarcity of Foreign Exchange Even if African governments could in one way or another dispense with customs revenue, there is still the formidable obstacle o f the persistent shortage o f foreign e x c h a n g e in almost all African countries, with all its attendant evils. T h e persistence o f the problem threatens, among other things, the whole integration process in the continent. It is the final product o f the reliance o f African countries on a few key exportables, which has exposed them to destabilizing external factors. O v e r the last two decades, the prices o f primary commodities have fluctuated on the international markets while experiencing a steady declining trend. B y 1 9 8 6 raw material prices were reported to have been at their lowest levels in recorded history relative to the prices o f manufactures; in general, they were as low as at the depths o f the Great Depression in the 1 9 3 0 s and in some cases (e.g., lead and copper) lower than their 1 9 3 2 levels. 2 3 T h e declining trend has continued since 1 9 8 6 for the prices o f most African e x portables, such as c o f f e e , c o c o a , cotton, aluminum, and tin, the prices o f which plummeted from $ 2 3 7 7 , $ 1 9 9 8 , $ 1 6 7 8 , $ 1 5 6 6 , and $ 6 8 7 5 per metric ton, respectively, in 1 9 8 7 to $ 1 4 7 3 , $ 1 1 9 5 , $ 1 6 4 4 , $ 1 3 0 2 , and $ 5 5 9 3 in 1 9 9 1 . Oil prices returned in 1 9 9 1 to the same level prevailing in 1 9 8 9 (i.e., $ 1 8 a barrel). 2 4 T h e steadily declining trend o f primary commodity prices is accounted for by such factors as the increasing domestic production o f foodstuffs, coupled with high demand elasticity for those foodstuffs in developed countries; improved technology, which economizes on the use o f natural raw materials; r e c e s s i o n s and protectionism in developed countries; competition between synthetics and natural raw materials; and the shift o f foreign investment to developed countries. T h e situation has also been aggravated by unfavorable internal factors, notably the increasing demand for foodstuffs (mainly as a result o f increasing population), droughts afflicting many African countries, and inefficient management o f production in many c a s e s . 2 5

PURPOSELESS STRATEGY

49

Given the increasing significance of imports and the other financial obligations vis-à-vis the rest of the world, the financial position of most African countries has continually been getting worse. Table 4.2 shows that foreign exchange holdings in the thirty countries listed were mostly on the decline over the decade 1975-1985. In all reported countries, with the exception of four in 1991, the holdings barely covered, at best, a few weeks of imports. However, six countries (20 percent of the countries listed) had virtually no foreign exchange reserves in 1991 and 1985, as opposed to two countries in 1980 and one in 1975. Ten countries held reserves covering less than one month of imports in 1991 and 1985. As a result, African countries have been relying heavily on external sources for financing the growing balance-of-payments deficits. As shown in Table 4.3, the overall current account deficit of non-oil-exporting countries steadily increased from $1.9 billion in 1973 to $13.7 billion in 1981 by an annual compound rate of increase of 28 percent. This growing deficit was almost totally financed by external sources. Capital inflows and official transfers combined represented a rising percentage of export earnings: 23.1 percent, 39.1 percent, and 43 percent in 1973, 1977, and 1981, respectively. The situation for the whole continent throughout the 1980s was no better. The overall balance of payments revealed a high deficit, and reliance on external financing was still very high, though declining: 39.6 percent in 1988 and 28.6 percent in 1992. This had the effect of augmenting Africa's debt at a rate far exceeding that of the region's GDP or its exports of goods and services. The rate of debt expansion (about 22 percent) has been even more rapid than that reported for other developing countries (estimated at 19 percent) and for the three largest borrowers of those countries: Argentina, Brazil, and Mexico (about 20 percent). 2 6 According to recent reports, the continent's total identified debt reached an estimated level of about $255 billion at the end of 1992, representing roughly 74 percent of the regional GDP, as opposed to 25 percent in 1977. 2 7 The debt service ratio, reflecting the acuteness of the crisis, is reported to have increased from 10 percent in 1980 to about 40 percent in 1989, and then to have declined to 32 percent in 1992, mainly as a result of rescheduling. 2 8 However, Green and Jones argue that these figures do not fully portray the present debt problem. 2 9 First, drawings on pre-1981 commitments and instances of running out of grace periods, combined with stagnant export earnings, suggests a sharp increase in debt service burden even if all new borrowings were to be concessional. Second, past debt service data for most African countries are based on actual payments made, not amounts due, which are in some cases at least 50 percent higher. Third, in no case do either past data or standard projections include either repayment or interest with respect to IMF drawings, or amortization on arrears. This is in

50

ROADS TO FAILURE

Table 4.2 Foreign Exchange Holdings in Relation to Monthly Imports in Selected African Countries Country Algeria Benin Burkina Faso Burundi Cameroon Chad Congo Côte d'Ivoire Egypt Ethiopia Gabon The Gambia Kenya Liberia Madagascar Malawi Mali Mauritania Mauritius Morocco Niger Nigeria Senegal Seychelles Sierra Leone Somalia Sudan Tanzania Tunisia Zaire

1975

1980

2.1 0.4 5.4 5.3 0.3 —

0.6 0.9 0.5 10.3 3.7 4.8 2.1 0.5 1.1 2.7 0.1 3.4 5.6 1.4 5.1 10.5 0.6 2.4 1.5 4.5 0.3 1.0 3.0 0.3

4.0 0.1 1.8 5.7 1.3

1985

1991

3.3

2.3 3.6 8.0 6.8 0.4 9.2 0.1 0.1 4.9 0.6 3.6 3.0 0.7

—

5.0 1.2 —

2.3

—

2.5 —

— —

2.6 1.2 1.8 0.4 2.2 0.1 0.2 1.9 0.2 5.3 1.8 1.1 2.2 7.0 0.1 2.2 1.1 0.3 0.4 0.2 1.9 3.0

0.7 1.4 3.4 0.2 2.9 —

—

1.5 2.0 0.3 1.6 0.7 0.4 4.3 2.7

1.9 3.2 6.5 1.7 7.6 4.9 6.2 6.8 0.1 2.5 0.4

—

1.6 0.9 0.2 0.1 0.1 1.0 1.0

—

0.1 2.2 1.8 2.1

Sources: Value of imports: IMF, Direction of Trade, several issues. Reserves: IFS, several issues; ADB, Annual Report, 1992.

sharp contrast to the low-income countries outside Africa, whose debt service ratio is estimated to have declined between 1975 and 1981 from 18.2 percent to 16.8 percent. At any rate, the crisis is further demonstrated by the growing arrears, which increased from $1.5 billion in 1975 to $9.4 billion in 1984 at a compound rate of increase of 22 percent per annum. Since 1984 arrears have largely decreased as a result of rescheduling agreements with creditors. The end result of these unfavorable developments has been twofold: it has discouraged African countries from trading with each other, and most

PURPOSELESS STRATEGY

51

Table 4.3 Non-Oil-Exporting African Countries: Balance-of-Payments Summary (in billions of U.S. dollars)

Exports (fob) Imports (fob) Trade balance Net services and private transfer Balance on current account Net official transfers Net capital inflows Overall balance External sources as % of exports

1992®

1973

1977

1981

1988»

10.4 -9.9 0.5

18.4 -19.7 -1.3

25.1 -30.9 -5.8

53 64 -11

70 83 -13

-2.4

-5.3

-7.9

-4

2

-1.9 1.1 1.3 0.5

-6.6 2.4 4.8 0.6

-13.7 3.4 7.4 -2.9

-15 11 10 6

-11 8 12 9

23.1

39.1

43.0

40

29

Note: a. All Africa. Sources: For non-oil-exporting countries, S. C. Nana-Sinkam, "The Impact of External Factors on BOP Problems of African Countries"; for all Africa, ADB, Annual Report, 1992.

countries are unable to honor their financial obligations, particularly toward regional institutions (e.g., solidarity funds and clearinghouses). Discouraging

Intra-African

Trade

The pervasive chronic and acute shortage of foreign exchange has had the negative effect of discouraging African countries from trading with each other, hence making them less useful to one another. All of them need to be paid in foreign exchange, but none has the sufficient reserves to effect payment. Each country therefore turns to the rich North, whose countries can afford to pay in foreign exchange or can offer credit facilities. Thus, whenever trade can take place between African countries, they opt for trading with rich countries. This is precisely one of the problems crippling subregional clearinghouses, the major objective of which is to economize on the use of the foreign exchange reserves of partner countries. Some member countries insist that certain key exportables be excluded from the list of goods and services settled through the clearing mechanism. For example, Nigeria excludes oil from the items passing through the West African Clearing House (WACH) and stipulates that it should be paid in foreign exchange. On the other hand, the scarcity of foreign exchange has also made it difficult for adequate credit facilities to be developed at the regional level, a necessary condition for expanding trade among the countries of the continent. Credit facilities include short-term suppliers credit, official bilateral

5 2

R O A D S TO FAILURE

aid, loans from regional financial institutions, and loans from private financial institutions. Proper suppliers credit, usually given for a very short period, is rare, and official bilateral aid is of course negligible in the African context because of the chronic shortage of foreign exchange. 3 0 Regional development banks are not in a position to mobilize sufficient resources for development in the continent by virtue of their limited capital, which cannot be expanded given the financial crisis in almost all countries. With respect to trade, the financing provided by this group of banks could probably enhance the continent's external trade, but not specifically intraregional trade; the financing is mainly given to pay for capital goods, which are often procured from outside the continent. 31 Commercial banks, and the financial sector at large, are not capable of providing adequate credit and/or other banking facilities required for expanding intra-African trade. Located mainly in the principal cities, they do not equally extend their services to all locales and/or sectors. It was found, for example, that the average area served by each bank branch was 38,800 km 2 in Botswana, 2,003 km 2 in Kenya, and 1,219 km 2 in Nigeria. The population served by each bank branch was 54,600, 52,033, and 114,285 in the three countries, respectively. 3 2 More to the point, their resources are too small to support growing trade side by side with other competing uses of funds. As shown in Table 4.4, the average deposits at each commercial bank in six out of the thirteen countries listed was less than $100 million, and it exceeded $120 million in nine countries. It was only in Egypt and Morocco that the average deposit could support financing trade in addition to other activities. In the meantime, the banks have not in most cases been free in allocating their modest resources among borrowers. Governments, more often than not, take a considerable portion of their funds to finance their ever-growing expenditures. As Table 4.5 shows, banks' claims on government were found to vary from almost one-fifth of total resources in somtf countries to about 85 percent in others. Banks usually hold an average of about 20 percent of their resources in the form of idle reserves, so the part left for other borrowers, if any, is very small. Even the allocation of the remaining funds is strictly controlled through various monetary policy instruments so as to favor "productive" sectors at the expense of "unproductive" ones (in particular, external trade). In this context most traditional as well as nontraditional monetary instruments can be claimed to have been applied in most African countries. In Ghana, for example, the Bank of Ghana imposed an interest rate on loans to trade of 18.5 percent, as opposed to 13 percent on loans to other sectors; it also authorized banks to increase credit for exports by 100 percent of the quota allocated to the sector concerned, but no increase was authorized in credit for financing imports. 3 3 In Nigeria, the central bank set

PURPOSELESS STRATEGY

53

Table 4.4 Commercial Banks' Resources in Selected African Countries at the End of 1990 (in millions of U.S. dollars) Country Benin Burkina Faso Côte d'Ivoire Egypt Kenya Mali Mauritania Morocco Niger Nigeria Senegal Togo Tunisia

Number of Commercial Banks 3 5 20 40 18 6 5 15 9 20 13 7 18

Total Deposits® 359 370 2242 35,000 1,958 377 218 10,625 374 4,778 998 499 5,952

Average Deposit 119 74 112 875 109 63 44 708 41 239 77 71 331

Sources: For total deposits, ADB, Selected Statistics on Regional Member Countries, 1992; for number of commercial banks, A. A. Halim, "Monetary and Financial Obstacles to IntraAfrican Trade." Note: Obtained by dividing the sum of demand deposits and quasi money (from table SO of ADB source) by exchange rates (table 52 of ADB source).

Table 4.5 Commercial Banks' Claims on Government in Selected African Countries (% of total assets/liabilities) Country

1979

1985

1993

Egypt Ethiopia The Gambia Ghana Lesotho Malawi Mauritania Morocco Nigeria Seychelles Sierra Leone Tanzania Zambia Zimbabwe

32.6 46.5 17.0 18.2 24.2 23.4 23.5 34.9 30.0 8.7 28.0 78.8 28.7 33.8

32.0 60.1 29.9® 25.7» 23.4 31.0 24.6 33.5 44.9 55.6 49.1 79.9 b 23.6" 37.0»

27 50 32

Source: IFS: several issues. Notes: a. 1984 data, b. 1983 data.

—

11 23 —

75 — —

19 85 24 —

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the interest rate on loans to trade at 8-11 percent, compared with 7 - 9 percent on loans to other sectors; it also required all banks in Nigeria, as of 1 April 1978, to receive an advance deposit of 100 percent of letters of credit relating to all categories of imports other than capital goods, raw materials, food products, and medicine. The amount was stipulated to be deposited with the central bank and not to be taken into account when calculating the banks' liquidity ratio. 34 In Egypt, several discriminatory monetary measures had been in force before the current Economic Reform and Structural Adjustment Program (ERSAP) began in 1990. For example, credit for financing imports of private cars and all consumer durable goods was banned; different advance deposits for imports were required to be deposited with the central bank; and different interest rates on loans were applied to various sectors. In addition, a 16 percent minimum interest rate was imposed on loans to trade, a 12-13 percent maximum on loans to industry and services, and only 7 percent strict on loans to nonluxurious housing. 35 The public-sector commercial banks are further crippled by a heavy bureaucracy and complicated routines. In some countries they underwent radical reorganization that eventually ended in failure. 3 6 Privately owned commercial banks (particularly the small ones, which are dominant in Africa) are exclusively profit seekers and risk avoiders. They prefer dealing with traditional trade centers over taking the initiative to create or promote relations with new or less-known ones. As a result, African commercial banks seldom extend branches to one another or even maintain correspondence relationships; hence, cooperation among them, if there is any, has been very weak. In a paper presented at the Monrovia Conference on Banking Systems in May 1977, the Central Bank of West African States (BCEAO) noticed the lack of cooperation among commercial banks in West Africa and concluded that "on the whole, the lack of important contacts among commercial banks in the French speaking countries constituted a genuine obstacle to the smooth functioning of banking operations in the subregion." 37 Crippling Regional

Organizations

Much of the failure of subregional organizations in attaining their objectives may be attributed to the scarcity of foreign exchange. As previously pointed out, an important ingredient of cooperation arrangements in Africa has been solidarity funds, established basically to compensate member countries for revenue losses as well as losses resulting from community projects placed in locations unfavorable to specific nations. Solidarity funds have reportedly been unable to function as initially anticipated. They have no resources of their own and rely instead on member countries'

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actually paying their assessed contributions. For their part, member countries in most cases are not in a position to honor their obligations, given their critical financial position; the result is that the community cannot rely on countries to meet their financial obligations toward subregional arrangements promptly. It was reported, for example, that arrears in payments of annual contributions for the effective running of ECOWAS, some of which go back to 1978, stood at more than $10 million. In spite of repeated efforts, only three member states managed to make partial payments of their assessed contributions to the budget for the 1982 fiscal year. By the end of 1983 about $23.5 million was owed in delayed contributions. By June 1985 only two member states had paid their 1984 contributions in full, and only five member countries had honored their obligations toward the operational budget due by the end of 1983. Eight member states were in arrears by 1982, three by 1980, and one member state had made virtually no payment since 1978. By August 1987 nine members had not contributed to the 1985 budget of the community, thirteen states owed contributions for 1986, and fifteen had not contributed to the 1987 budget. By the end of 1988 the shortage of funds for the secretariat was deemed acute and crippling to the fund. 3K Similar problems seem to be facing the youngest African grouping, the PTA. By the time its treaty came into force, some member states had already expressed their dissatisfaction with the formula for contributions to the PTA budget. According to Article 36 of the treaty, contributions are based on three variables: GDP, per capita income, and intra-PTA exports, with weights of 30 percent, 40 percent, and 30 percent, respectively. At the seventh meeting of the council of ministers, in December 1985, Comoros, Djibouti, and Mauritius felt that the three variables did not represent an equitable method of assessment. They maintained that the method produced figures which were not justified by the strength of the countries' economies or by the benefits derived from membership in the PTA. The secretariat was asked to examine the issue. The latest of the secretariat studies was submitted to the thirteenth meeting of the council of ministers, in Arusha, Tanzania, in November 1988, and was adopted by the authority at its meeting in Arusha in December of the same year. A new formula was recommended based on four parameters: GDP, per capita GDP, intra-PTA exports, and intra-PTA imports, with weights of 35 percent, 15 percent, 42.5 percent and 7.5 percent, respectively. It was suggested that the average value from the last three years be used for each parameter. On the basis of this formula, which took effect 1 January 1989, the largest contribution would be Kenya's UA455,373 (as opposed to its contribution of UA479,340 in 1988), and the smallest contribution would be Comoros's UA37,628 (as opposed to UA48,653 in 1988). The contributions of Burundi, Djibouti, Mauritius, and Rwanda were to be UA78,851, UA127,505,

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UA113.604, and UA100.661, respectively, compared with UA75,736, UA157,942, UA199,885, and UA91,314 in 1988.3' Ironically, the scarcity of foreign exchange has frustrated the subregional clearing arrangements, the very mechanisms established to get around the problem. The main objective of the clearing arrangements is to facilitate intragroup payments by using national currencies, thereby economizing on the use of the scarce foreign exchange reserves of member countries. Central to the clearing mechanism is the payment in foreign exchange of outstanding balances by debtor countries at the end of each month, the settlement period. There are also provisions relating to the setting of debit and credit lines, with an interest penalty usually charged on the amounts in excess of debit lines. The fundamental problem facing clearing arrangements and threatening their very existence in Africa is the presence of structural imbalances in intragroup trade, which are due mostly to the polarization of growth in the relatively advanced member countries. Invariably, less developed member states are persistent debtors, and relatively advanced ones carry surpluses year after year. For example, the more industrialized Zimbabwe is always a net creditor of the PTA member countries, whereas Zambia is a net debtor. The absence of adequate credit facilities and the insistence of member countries on hard currencies for settling outstanding balances have paralyzed the subregional clearinghouses. The accumulation of sizable arrears has substantially reduced the involvement of both creditor and debtor banks in the activities of the clearinghouses. In ECOWAS, for example, the overall settlement arrears increased in the first half of 1980s, reaching about UA45 million in 1985. Intrazonal debt was reduced to UA29.6 million in 1987 and to UA17.9 million in 1989. 4 » Desperately short of foreign exchange, debtor countries are persistently unable to settle these balances, the accumulation of which has turned the clearinghouses into a credit mechanism. As a consequence, both creditor and debtor countries cease to use the clearing facility. The impatient creditor country, badly in need of foreign exchange, cannot wait any longer, while the almost bankrupt debtor country, equally short of foreign exchange, cannot pay in hard currency. Because of the acute shortage of foreign exchange, both groups of countries have tended to exclude key commodities, particularly oil, from the list of goods and services passing through the clearinghouse, which has further diminished the clearinghouse's operations. For example, the total transactions channeled through WACH have shown a drastic decline since 1984. As a share of intragroup imports, they dropped from about 40 percent in 1983 to roughly 7 percent in 1988, which indicates that the clearing mechanism practically stopped functioning in 1988. Moreover, less than 20 percent of all transactions in the 1980s were cleared by the use of regional currencies, and in several years less than 10 percent. 41

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57

Thus, unless surplus countries are willing to extend the credit period, clearinghouses may default, as in the case of the Central American clearinghouse. The Latin American Integration Association (LAIA) learned its lesson and established within the clearing scheme a credit mechanism to settle outstanding debit balances of member countries. The term of repayment is limited to four months, which can be extended up to one year. By the end of 1986, member countries had made sixty-two drawings from the facility, which partly explains the greater effectiveness of the LAIA clearing scheme. 4 2 More to the point, the attitude of some monetary authorities has had further negative effects on the functioning of the clearinghouses. In some cases, they preclude commercial banks from opening correspondent accounts with other commercial banks in other member countries. In other instances some central banks have been reluctant to allow funding of their commercial bank's correspondent accounts, and some central banks have restricted the funding to only the actual individual obligations presented for payment. When bilateral payments arrangements exist, the respective monetary authorities prefer to settle the trade under these arrangements rather than through clearinghouses. Finally, there is a lack of strict observance of the rules and regulations by member banks. Other problems with clearinghouses are noteworthy: the long administrative channel associated with transfer operations through clearinghouses, the existence of stringent exchange and trade regulations in many of the member countries, the instability of most of the member countries' exchange rates, and the inconvertibility of the majority of currencies. In addition, the confirmed irrevocable documentary credits so far have not been used because of the lack of confirming arrangements among commercial banks of the subregions, as well as some problems arising from the implementation of traditional regulations governing documentary credits. There is also a lack of awareness of the role and functions of clearinghouses, an accompanying unwillingness of the commercial banks to break with tradition and use the facility, and a lack of interest on the part of exporters and importers to change existing trade patterns. 4 3 These factors explain why the performance of the three subregional clearinghouses has not been satisfactory. 4 4 Transactions of WACH on average represented 15 percent of the subregion's intraimports over the first two years of its operations and declined to below 7 percent in 1988. Moreover, the rate of clearance declined from 25 percent of total transactions in 1976/77 to only 8.3 percent in 1984/85. This means that 92 percent of all transactions in the last year were to be settled in foreign exchange. The situation remained more or less unchanged over the rest of the 1980s. Transactions recorded by CACH over the period 1982-1986 totaled only SDR2.2 million, 65 percent of which represented Zaire's exports. In addition to the low level and unbalanced structure of trade through CACH,

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cleared payments were almost nonexistent, which means that all payments had to be settled in foreign exchange. The volume of trade passing through the PTA clearinghouse has, on average, been around 10 percent o f total intra-PTA trade since it commenced operations in February 1984. Moreover, an average of about three-fourths of the total transactions were settled in convertible currency. 45

Distributional Problems One final source of pessimism concerning making the liberalization programs of intra-African trade effective is linked to the distributional problems usually associated with the classical laissez-faire model of regional integration. As indicated earlier, free-market forces invariably favor the more advanced partners at the expense of the less developed ones, which gives rise to dissatisfaction with the distribution of the costs and benefits of integration among member states. This eventually creates disintegration tendencies, as has typically been the case in Africa. Although African countries have many things in common, notably their economic structure and level of development, there exist many differences among them, particularly in connection with economic resources, markets (in terms of both population and income), and the level of industrialization. These differences make subregional groupings heterogeneous communities comprising both rich and poor countries, more industrialized and less industrialized partners, big and small states, etc. In West Africa, for example, CEAO comprises the more developed Cote d'lvoire and Senegal side by side with the smaller Mauritania and the poorer Burkina Faso, Mali, and Niger. Within the larger grouping of ECOWAS, Nigeria represents about 6 0 percent of the ECOWAS market in terms of population and over three-fourths of the market in terms of income; the smaller Cape Verde, The Gambia, and Guinea-Bissau account for 0 . 2 percent, 0 . 4 percent, and 0.5 percent, respectively, of total ECOWAS population and 0.01 percent each of the grouping's total income. 4 6 In East Africa, the PTA embraces the economically more advanced states of Kenya and Zimbabwe along with the less developed, geographically disadvantaged microstates of Comoros, Mauritius, Djibouti, Rwanda, and Burundi. The same situation prevails in Central Africa, where UDEAC comprises the resourceful Cameroon and Gabon together with the relatively disadvantaged CAR and Chad. In North Africa, there are the populous Egypt and the dispersed Libya and Mauritania. Algeria, Egypt, Morocco, and Tunisia are also more industrialized compared with the other countries in the subregion. Given this heterogeneity of African subregional groupings, liberalization programs for intragroup trade have tended to. polarize regional

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development in the more advanced partner countries. The clustering of industries has generally been associated with and reinforced by disequalizing movements of the factors of production. The cumulative effects have further increased the divergences between relatively advanced and comparatively backward members of the groupings, which has eventually created the dissatisfaction of the latter group of countries. As pointed out earlier, the situation has been compounded by the inability of solidarity and compensation funds to cope with these problems. The East African Common Market The East African Common Market (EACM) is a case in point. 47 Its history can simply be seen as a case of dissatisfaction on the part of the three partner countries with how the costs and benefits of integration have been distributed. As discussed earlier, the EACM was a de facto common market totally underpinned by a laissez-faire philosophy. There was neither a general harmonization of economic policy nor specific measures to control the operations of the market mechanism. There was not even a legal machinery to run the common market. Favored by Britain in terms of technical and financial assistance, and possessing a better climate and other natural endowments than either Uganda or Tanganyika, Kenya early on attracted a good number of Europeans and Asians, whose presence attracted industries to cater to the East African market. The development of a relatively strong manufacturing sector in Kenya called for the application in 1924 of protective measures. These measures eventually sparked conflicts among the three countries with regard to the distribution of benefits. Uganda objected to the measures, claiming that (1) Kenya could not adequately supply the protected goods, (2) Kenya's goods were overpriced and of poor quality and therefore exploited consumers in Uganda, and (3) the protected industries had not been able to stand on their own after seven years of heavy protection. The situation was aggravated by the dwindling of Uganda's revenue as a result of the shift of its trade from Tanganyika to Mombasa after the railway between Kenya and Uganda was completed. Uganda put pressure on Kenya to hand over some of the customs revenue collected at Mombassa. To resolve the controversy a conference of the three countries was convened in 1930, resulting in a reduction of some of the tariff duties. However, protection continued and the other issues remained almost the same. Uganda and Tanganyika felt thereafter that they were not benefiting from the common market as much as Kenya. They advanced three arguments: (1) the common market limits each country's economic sovereignty, (2) Uganda and Tanganyika lose revenue through importing Kenyan goods instead of foreign goods, and (3) they were also losing an

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R O A D S TO FAILURE

opportunity to industrialize while not sharing the benefits that Kenya received from the growth of manufacturing industries. The potential danger of the common market collapsing was therefore great. A commission was appointed in 1960 to reexamine the cooperation arrangement and recommend remedies and improvements. The commission recommended the establishment of a common fund, which became a distributional pool from which Uganda and Tanganyika would be offered financial compensation. The pool was to receive 6 percent of the customs and excise duties and 40 percent of the income tax on manufacturing and financial companies' profits. In its application, this fiscal compensation program fell short of the expectations by Uganda and Tanganyika. It was not sufficient to redress the industrial imbalances in the common market. In April 1964 a summit was held to address this issue. The meeting agreed on the following five measures to rectify the imbalances in industrial location and intragroup trade: •

• •

• •

Persuasion of interterritorially connected firms to increase production in a deficit country and to decrease it in a surplus one so that self-sufficiency could be attained and the ratio of imports to exports reduced; Allocation of certain major industries among the three countries; Application of a system of quotas whereby exports from surplus countries would be progressively reduced and local production increased in the deficit countries; Increase in sales from a country in deficit to a country in surplus; and Early agreement on a system of inducements and allocations of industries in order to secure equitable distribution of industrial development among the three countries.

However, none of these measures was implemented, and the agreement never became a legal and binding treaty because Tanzania refused to ratify it. After the failure of this agreement, cooperation became precarious and separatist feelings grew stronger. In an attempt to maintain the common market, the three countries agreed in 1965 to appoint another commission, headed by Kjild Philip, to look into the whole problem and submit definite recommendations. On the basis of the commission's findings and recommendations, the Treaty of East African Cooperation was signed at Kampala, Uganda, on 6 June 1967 and came into force on 1 December 1967. The treaty established the East African Economic Community (EAEC), and the common market was among the emphasized areas of cooperation.

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However, the provisions of the treaty were not sufficient to remove the strains within the common market. Although the East African Development Bank (EADB) was charged with ensuring an industrial balance in the three partners through selective financing, this was not possible because member countries continued to establish competitive ventures. Each country started to pursue its own economic policies when it experienced balance-of-payments imbalances as of 1971. Exchange controls were imposed in the three countries and trade restrictions within the common market heightened. Independent economic policies led to, inter alia, the collapse of the unitary or unified exchange rate, which had previously put the three currencies at par. Because Kenya was more liberal in its import restrictions and controls, there was a currency flight from Uganda and Tanzania to Kenya as confidence in the currencies of the former two countries dropped. This led the two countries to apply more restrictive measures to cut down capital flight. Moreover, each of the three countries created state-trading corporations designed solely to import a defined range of goods from both the common market and thirdparty countries. In a final attempt to avoid a complete collapse of the EAEC, the three countries set up a commission in 1975 to review the 1967 treaty and to make recommendations on the community's future. As usual, the recommendations of the commission, which dealt with industrial cooperation, a return of free trade, and the future of cooperation, have never been implemented, and a feeling grew in the member countries that they could do better alone. Subsequent events revealed that the differences among the three countries were so great that nothing could have prevented the eventual collapse of the community in 1977. The Preferential Trade Area The same problem surfaced when the PTA's treaty was put into practice. Small partners have persistently expressed dissatisfaction with the organization; Mauritius even submitted a notice of withdrawal in 1986 (which was subsequently canceled). In November 1987 the council of ministers commissioned a study to (1) assess the costs and benefits of the PTA members resulting from the implementation of the provisions of the PTA treaty and programs, and (2) recommend measures and mechanisms likely to enhance the equitable distribution of costs and benefits among member states. The study team submitted a preliminary report in June 1989 that proposed adopting specific measures in the areas of infrastructural development, trade, production, and financing (rather than the traditional compensatory and corrective measures). The study also called on those countries

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that were net exporters within the PTA (e.g., Kenya and Z i m b a b w e ) to make every effort to increase their imports from the PTA group. 4 8

Other Economic Groupings Economic groupings in the other subregions have in one way or another experienced similar problems. In West Africa, one intractable problem is the concentration of manufacturing industries around Abidjan, and Dakar, within C E A O . In the enlarged community of ECOWAS, the Francophone countries, particularly Cote d ' l v o i r e and Senegal, were initially fearful of the Nigerian hegemony. They attempted to make the approval of the first five protocols conditional on the broadening of E C O W A S to include the Francophone states of Central Africa, but Nigeria eventually managed to defeat the proposal. This dispute partly explains why the substantive implementation of the treaty was f o u r years behind schedule in May 1979 and why the provision representing the first stage of the full customs union c a m e into force late and has not been effective. However, according to S.K.B. Asante, although the issue of unequal distribution of costs and benefits has not yet b e c o m e evident in E C O W A S , it is likely to impede progress on the implementation of the ECOWAS trade liberalization program. Although compensation p a y m e n t s f o r revenue losses are provided for in the treaty, this is intended only to remove some of the transitional costs; the provisions do not compensate for contingent losses f r o m trade creation, which are likely to be significant in the absence of an e f f e c t i v e c o m m u n i t y regional policy. Consequently, the less developed E C O W A S members will be reluctant to implement their commitments to trade liberalization unless they are assured that their investments will be fully safeguarded. 4 9 T h e dissatisfaction of Chad and C A R with the distribution of resources f r o m the solidarity f u n d and with the location of new industries was behind their withdrawal f r o m U D E A C in 1968, only two years after the treaty had c o m e into force. As previously indicated, the two countries joined with Zaire to form the Union of Central African States (UEAC), but C A R rejoined U D E A C in December 1968.

Notes 1. Wiles, P.J.D., Communist International Economics. 2. Viner, J., The Customs Union Issue. 3. Bechler, E., "Integration for Development: Hopes and Problems." 4. Robson, P., The Economics of International Integration. 5. Altmann, J., South-South Cooperation and Economic Order." 6. Ibid.

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7. Axline, W. A., Caribbean Integration, pp. 45—47. 8. Altmann, J., "South-South Cooperation and Economic Order." 9. Axline, W. A., Caribbean Integration. 10. Adapted from Article 3(1) of the P T A treaty. The other treaties indicate very similar goals. 11. A D B , Selected Statistics, 1982 and 1992. 12. Ibid. 13. ECA, The Balance of Payments Problems of Developing Africa; ADB, Selected Statistics, 1992. 14. A D B , Selected Statistics, 1992. 15. See ECA, The Balance of Payments Problems of Developing Africa; ADB, Selected Statistics, 1982 and 1992. 16. Halim. A . A., "Monetary and Financial Obstacles to Intra-African Trade." 17. See ADB, Selected Statistics, 1992; Halim, A . A., "Monetary and Financial Obstacles to Intra-African Trade." 18. World Bank, World Development Report, 1986. 19. Asante, S.K.B., "Regional Economic Cooperation and Integration." 20. Robson, P., Integration, Development and Equity. 21. Martin, G., "The Preferential Trade Area for Eastern and Southern Africa." 22. Ibid. 23. Drucker, P. E., "The Changed World Economy." 24. A D B , Annual Report, 1992. 25. UNCTAD, World Commodity Trade. 26. Green, R., and S. G. Jones, "External Debt." 27. A D B , Annual Report, 1992. 28. Ibid. 29. Green, R., and S. G. Jones, "External Debt." 30. Some relevant agreements have been concluded between African countries. For example, in late 1984, an agreement was signed between Senegal and Nigeria whereby 4,000 tons of chemicals from Senegal, valued at CFA4 billion, would be bartered for Nigerian oil (,Bulletin d'Afrique Noire, 17 January 1985). A special credit of $2.5 million was granted by Angola to Guinea-Bissau in early 1985 for purchasing refined oil products from Angola, on the condition that Guinea-Bissau would supply agricultural, industrial, and agro-industrial products in exchange for Angolan oil by-products, which were to be supplied regularly until 1989 (West Africa, 19 April 1985). A third barter agreement was signed in 1984 between Burkina Faso and Ghana, whereby Burkina Faso was to export 24,000 head of cattle (valued at $5 million) to Ghana, which would make 50 percent of the payments through exporting salt, sawn lumber, and kola nuts and the other 50 percent through hard currency (West Africa, 18 June 1984). 31. There are six development banks operating in Africa at both regional and subregional levels: the African Development Bank ( A D B ) , West African Development Bank ( B O A D ) , East African Development Bank (EADB), Development Bank of Central African States ( B D E A C ) , P T A Trade and Development Bank, and ECOWAS Bank. The last two banks commenced operations in 1986. 32. Onoh, J. K., Money and Banking in Africa, p. 105. 33. CEDEAO, Obstacles monétaires et financiers. 34. Ibid. 35. Central Bank of Egypt, Economic Review, several issues. 36. See Halim, A . A., "Monetary and Financial Obstacles to Intra-African Trade."

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37. CEDEAO, "Dans l'ensemble, l'absence de contacts importants entre les banques commerciales des pays francophones constitue un obstacle réel au fonctionnement normal des opérations bancaires dans la sous-région," in Obstacles monétaires et financiers. 38. Asante, S.K.B., "Regional Economic Cooperation and Integration." 39. Martin, G., "The Preferential Trade Area for Eastern and Southern Africa." 40. Genberg, H., "The Establishment of a Credit and Guarantee Mechanism in the West African Clearing House." 41.Ibid. 42. Karunasekera, J., "Financial Cooperation among Developing Countries." 43. Halim, A. A., "Objectives of Harmonization of Banking Legislation and Practices in Africa." 44. On the assessment of the performance of the three subregional clearinghouses, see: CACH, "The Experience of the Central African clearinghouse"; Chanthunya, C. C., and F. Chihwai, "The Experience of the clearinghouse of Eastern and Southern Africa"; Genberg, H., "The Establishment of a Credit and Guarantee Mechanism in the West African Clearing House"; Nemedia, C., "The Experience of WACH"; PTA clearinghouse Executive Secretary's Report; WACH Annual Reports, 1976/77-1984/85. 45. R. H. Green indicates that the figure was down to 47 percent in 1991. 46. Okelo, J. E., "Economic and Regional Integration in West Africa." 47. On the detailed history and assessment of the performance of the East African Common Market and East African Economic community, see: Diouf, M., Intégration économique, perspectives africaines; Hazlewood, A., "Economic Integration in East Africa"; Ndegwa, P., The Common Market and Development in East Africa; Niakimwe, K., The East African Community: Past Lessons and Future Possibilities for Cooperation; Nyunya, J. D., "The East African Community." 48. Martin, G., "The Preferential Trade Area for Eastern and Southern Africa." 49. Asante, S.K.B., "Regional Economic Cooperation and Integration."

5 IMPRUDENT ADMINISTRATION

Africa's poor choice of integration strategies has been made worse by imprudent administration of those strategies, which has largely contributed to the failure of regional cooperation in the continent. Imprudent administration has manifested itself in, among other things, African countries' rush to create multiple overlapping groupings, as well as in the dominance of politics, particularly in the management of multilateral organizations.

The Multiplicity of Overlapping Schemes In the euphoria of independence, African governments rushed to create a host of mostly similar cooperation arrangements in each subregion. Each scheme had more or less the same objectives and attempted to tackle almost the same problems, often at the same time, but in a different and independent manner and without coordination among or even consultation with the other schemes. The phenomenon has been particularly striking in West Africa. According to the ECA, the countries of that subregion established about fifty intergovernmental organizations over twenty-five years, most of them overlapping. For example, CEAO, the MRU, Senegambia, and ECOWAS were all established with the same objectives. There are also the two monetary arrangements WAMU and WACH. More striking are the multiple overlapping memberships. Many countries in the subregion are concurrently members o f more than one of these similar arrangements. For instance, Burkina Faso, Cote d'lvoire, Mali, Mauritania, Niger, and Senegal, which are all members of ECOWAS, had previously created CEAO. Senegal, a member of both C E A O and ECOWAS, later created Senegambia with The Gambia, which is also a member of ECOWAS. Guinea, Liberia, and Sierra Leone had initially formed the MRU before joining ECOWAS. Benin, Burkina Faso, Cote d'lvoire, Niger, and Togo, all members of ECOWAS, had previously formed the Council of Entente States in 1959. 65

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The seven member countries of WAMU (Benin, Burkina Faso, Côte d'Ivoire, Mali, Niger, Senegal, and Togo) are at the same time members of WACH, which comprises all the countries of the subregion (except Cape Verde) and Mauritania in addition. The countries of the East and Southern African subregion could not escape this pitfall, either. In the 1980s they established two more or less identical arrangements—the PTA and SADCC—with six countries members of both arrangements (Lesotho, Malawi, Swaziland, Tanzania, Zambia, and Zimbabwe). Botswana, Lesotho, and Swaziland are also members of SACU, together with the Republic of South Africa. The same situation is being experienced in Central Africa. There is the all-embracing arrangement ECCAS, together with the overlapping ones UDEAC and CEPGL. There are also the two monetary arrangements of BEAC and CACH. CACH includes the six member countries of B E A C — Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon—in addition to Zaire. This situation is compounded by extra-subregional overlapping memberships. For example, Burundi and Rwanda, members of C E P G L and ECCAS, are at the same time members of the PTA. Angola, which participates in ECCAS, is also an active partner of SADCC. The North African nation Mauritania, which participates in the North African CPCM and recently the MALI, is also a member of the West African arrangements CEAO, ECOWAS, and WACH. Mauritania was also once a member of WAMU. A C M S has recently reported that the Sudan, from North Africa, and Zaire, a Central African state, have joined the East and Southern African subregion's PTA. Egyptian newspapers have reported that Egypt, clearly in North Africa, has applied for membership in the PTA. The problem of overlapping membership has been further aggravated by the economic relations of some African countries with other countries or groupings outside the continent. The countries of the Franc Zone are linked to France through a preferential monetary cooperation arrangement. Quite a number of sub-Saharan African countries are party to the Lomé Convention, which links sixty-six African, Caribbean, and Pacific (ACP) states to the twelve member countries of the EEC in a comprehensive trade and financial cooperation arrangement. Madagascar and Seychelles, in East and Southern Africa, seem to be more committed to their membership in the Indian Ocean Commission (COI), an organization set up in April 1978 to counter the increasing influence of foreign powers in the area, than to the PTA. Finally, all member countries of North Africa's newly formed MAU, which are also the members of CPCM, are at the same time members of such larger Arab arrangements as the Arab League, the Defence and Economic Cooperation Treaty, and Arab Economic Unity. The problem of overlapping groupings and memberships has given rise to repetition of and conflicts between the provisions of the treaties of

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similar organizations. Again, West Africa is a case in point. Cooperation between CEAO and ECOWAS has reportedly been nonexistent, with the result that there are at present three customs nomenclatures, three different rules of origin, two different and incompatible compensation systems, and two different and yet-to-be-reconciled systems of trade liberalization. A major source of conflict arising from this complicated situation has to do with the incompatibility of the provisions of the treaties of both ECOWAS and CEAO, particularly in the area of trade liberalization. Although the two arrangements envisage the creation of a customs union, the CEAO treaty does not provide for a general free trade area as does ECOWAS. Instead, it establishes a preferential trading area through the use of the taxe de coopération régionale (TCR). Only trade in produits du cru (i.e., unprocessed and entirely local products) is to be duty-free. The implications of these two liberalization schemes will become evident if the two customs unions are completed. The same product would be traded within CEAO countries under the TCR preferential treatment and would be subject to the agreed TCR import duty rate, whereas in ECOWAS it would carry no import charges, provided other requirements are met. This would lead to a difficult situation in ECOWAS.1 Another contradiction between the ECOWAS and CEAO treaties concerns the reciprocal granting of most-favored status. Under the ECOWAS treaty, the rights and obligations of members derived from previously signed contracts, including the CEAO treaty, are not affected. However, all ECOWAS members are required to remove all provisions from prior treaties that are not compatible with the provisions of the ECOWAS treaty and not to enact new ones. According to the ECOWAS treaty, all CEAO members who also belong to ECOWAS would be obligated to extend all preferences granted to their fellow CEAO members to all ECOWAS members as well. According to S.K.B. Asante, the customs union of CEAO logically has to cease to exist at some time in the future and to merge with ECOWAS. 2 That is why CEAO members have persistently requested to be excepted from Article 20 of the ECOWAS treaty, which provides for member countries to grant most-favored-nation treatment to each other. Although in May 1983 ECOWAS leaders decided to implement a single trade liberalization program for industrial products originating in member countries, and despite an appeal made to CEAO member countries to merge its aims with those of ECOWAS so as to avoid duplication of efforts, CEAO members, which actively participated in the development of the single ECOWAS trade scheme, subsequently disowned it. This attitude puts the future effectiveness of the ECOWAS trade liberalization program in question. The same situation is found in the East and Southern African subregion. The PTA has established its clearinghouse and initiated its trade liberalization program aimed at the reducing and eventually eliminating

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tariff and nontariff barriers to intra-PTA trade. According to the trade liberalization program, trade in a group of commodities is accorded most-favored-nation (MFN) treatment within the PTA. The MFN clause prevents a S A D C C country that is also a member of the PTA from granting greater preferences toward the listed commodities to its S A D C C partners than to its PTA partners. The three subregional groupings in Central A f r i c a — UDEAC, CEPGL, and ECCAS—face more or less the same problems. A second serious problem arising from multiple overlapping memberships is that of divided loyalty. In most cases member countries find it difficult to reconcile or compromise on the contradictory provisions of various treaties and to clearly establish their priorities. Take, for example, the case of West Africa. The two arrangements CEAO and ECOWAS envisaged the establishment of a customs union, CEAO by 1986 and ECOWAS by 1990. Those members of both groupings, the six Francophone countries, will experience a conflict of loyalty between the two customs unions. It is not clear how the six countries will resolve this conflict. Mauritania, another case in point, is a member of the West African C E A O and ECOWAS, the North African MAU, and the larger Arab organizations such as Arab Economic Unity and the Arab Common Market. It is not known whether Mauritania had been aware of the possible conflict among the provisions of the different treaties before it decided to join all these subregional organizations. It is also unclear how it is going to reconcile them. The same applies to those countries of the East and Southern African subregion that are concurrently members of the PTA, S A D C C , African, Caribbean, and Pacific signers of Lome (ACP), and SACU. Finally, there is the problem of unnecessarily rising costs of regional cooperation, in terms of human and financial resources, that is a result of the multiplicity of overlapping memberships. To establish, for example, some fifty intergovernmental organizations in West Africa alone over a quarter of a century is too much for a West African country to afford, particularly because almost all the countries, with the possible exception of Nigeria, do not have sufficient resources. The 1970s and 1980s were in particular a period of crisis for most of them.

The Role of Politics Political considerations have largely been an adverse, rather than helpful, factor in the context of regional cooperation right from the beginning. The special relationships between African countries and their former colonial metropoles have severely limited the usefulness of African countries to each other. In particular, the French-speaking countries have maintained stronger relations with France than with their African partners, which has

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been a cause of resentment in some groupings, particularly ECOWAS and the PTA. Coupled with the strong influence of outsiders on African politics were the various ideologies imported to the continent from the North. Virtually the whole spectrum of political ideologies have coexisted in the continent since all countries achieved independence. West Africa and East and Southern Africa are well known for having a wide range of political viewpoints. In the latter subregion, political regimes range from orthodox Marxism-Leninism (in Ethiopia, Mozambique, and Angola) to unrestricted liberalism (Kenya and Malawi), with moderate socialism (Uganda, Tanzania, and Zimbabwe) somewhere in between. Socialist Guinea and Ghana have existed side by side with the liberalist Cote d'lvoire and Senegal in West Africa. In the North, Algeria, Libya, and Egypt adopted socialism, and Morocco and Tunisia maintained liberalism. The types of leaders have worsened the potential difficulties of disparate ideologies. Some African leaders have tended to consider themselves national heroes guarding the interests of their countries. The consequent rivalries and mistrust have brought about a frequent reshaping of the map of political coalitions. The situation has been compounded by the artificial political boundaries established by the colonial authorities that have given rise to political conflicts between many adjacent countries: for instance, the conflicts between Libya and Chad, Mauritania and Senegal, Somalia and Kenya, and Somalia and Ethiopia. Civil wars further reflect the same situation. Examples include Morocco, Nigeria, Zaire, Ethiopia, and Sudan, where separatist movements have been fighting for independence. The end product of these political considerations has been threefold: (1) cooperation schemes have been exposed to changing and destabilizing politics, (2) the commitment of member countries to common regional action has been inadequate, and (3) the management of subregional organizations has been impeded by political concerns. In the first place, African leaders have not been able to distinguish between long-term development requisites and short-term political tactics, a situation responsible for the frequent rise and fall of subregional groupings. Numerous schemes collapsed, and many others were set up not with regard to their economic viability or technical soundness, but merely for the sake of political alliances and friendship. The history of economic cooperation in Africa provides ample evidence. As referred to earlier, some countries broke away from the Interim Council of Ministers of the Countries of West Africa in November 1967 and established instead, with Guinea, the Organization of Senegal River States (OERS). The proposed West African Free Trade Area, which was established in 1964 by Liberia, Sierra Leone, C6te d'lvoire, and Guinea, fell victim to political conflict between Cote d'lvoire and Guinea; and the MRU was created in 1973 by all the same countries except Cote d'lvoire. The Senegambia Federation

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was formed in 1981 after Senegalese troops thwarted a coup d'état in The Gambia, but the presidents of the two countries essentially dismantled it in 1989. In East Africa, the same political factors contributed to the collapse of the East African Common Market and the East African Currency Board. 3 The situation in North Africa was no better. Political factors were partly responsible for the fact that until very recently no all-embracing cooperation arrangements were established in the subregion. Even the Maghreb Permanent Consultative Council, the only multilateral scheme in the subregion, was brought to a standstill by the political conflict between Algeria and Morocco over the Sahara crisis, as well as by the earlier withdrawal of Libya in 1970. Furthermore, the governments of member countries have not shown adequate commitment to regional action. This lack of commitment has manifested itself in member countries independently developing their own strategies, plans, and priorities, with regional cooperation hardly reflected in them. Although African countries continue to speak of collective action for regional integration, no single state has yet designed its national plans to be consistent with the promotion of effective integration for development. 4 Most have not even developed a national apparatus for monitoring and coordinating their involvement in the different intergovernmental organizations. 5 The lack of commitment has also been reflected in tardy payment of budgetary contributions and a low level of participation in meetings, as well as in the fact that not all member states have ratified and implemented the protocols, acts, and decisions of the groupings. Payments arrears in the case of ECOWAS were mentioned earlier. Within the PTA of East and Southern Africa, the small member states (Comoros, Djibouti, Mauritius, Rwanda, and Burundi) have expressed serious concern about the tendency for the organization to be largely dominated by the two big Anglophone countries Kenya and Zimbabwe. In spite of having been granted numerous exceptions to the treaty provisions, Comoros and Djibouti appear to be reluctant members of the organization. They frequently do not implement the oganization's decisions and threaten to withdraw when they feel their legitimate national interests are threatened by community decisions. 6 Finally, the leaderships of the various subregional organizations have not been selected on an objective basis. Rather, the appointments have been influenced by the interference of member governments. Invariably, they put their own narrow national interests above those of the communities by insisting on politically desirable appointees to head multilateral organizations. In most cases, these appointees have proved incapable of leading the organizations. Evidence from all African subregions suggests that inexperienced leadership has largely contributed to the paralysis or poor performance of quite a number of regional groupings.

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Notes 1. Asante, S.K.B., "Regional Economic Cooperation and Integration." 2. Ibid. 3. Another example is the case in which President Gdi Amin of Uganda sought foreign defense forces against his neighbor and partner Tanzania. (My thanks to R. H. Green for pointing this out to me.) 4. Tipoteh, T. N., "A Scientific Perspective for Development through Integration in Africa." 5. Asante, S.K.B., "Regional Economic Cooperation and Integration." 6. Martin, G., "The Preferential Trade Area for Eastern and Southern Africa."

PART 3 APPROACHING THE FUTURE

6 REORIENTATION ATTEMPTS

The signs foreshadowing the failure of cooperation efforts in Africa have been in evidence right from the beginning. Several attempts have therefore been made in search of more effective alternatives. Four such attempts stand out: interventionism, the Lagos Plan of Action (LPA), the Southern African Development and Coordination Conference ( S A D C C ) , and the Pan-African Economic Community (PAEC). None of these attempts, however, has managed as yet to put regional cooperation in the continent in the right direction. Interventionism is a radical approach that considers regional integration as a revolutionary inward-looking development process based on collective self-reliance among Third World countries. This approach has proven to be rather Utopian. It does not yet exist in reality and has remained in the realm of aspirations. Recent developments in the former socialist world further suggest that it will never have a chance to come into operation. In 1 9 8 0 the Organization of African Unity (OAU) adopted a comprehensive plan of action, the LPA, listing specific measures to be taken by African countries individually and collectively in various sectors over twenty years at national, subregional, and regional levels. The plan is based on a "mixed" approach to regional development, combining liberal as well as interventionist elements. Progress on the implementation of the plan has not been satisfactory. The plan suffers from, among other things, contradictions between certain provisions and, above all, the absence of an active body capable of monitoring its implementation and orchestrating cooperation efforts in general in each subregion. Also in 1980, the Frontline States in Southern Africa established a radical integration scheme, S A D C C , based on coordination and harmonization rather than supranationalism. The grouping is production oriented and straightforwardly interventionist. The responsibility of coordination is allocated among partner countries instead of being entrusted to a powerful secretariat. The performance of this arrangement also has not lived 75

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up to expectations for a variety of reasons. In the final analysis, two major weaknesses stand responsible for SADCC's poor achievements: the weak central secretariat and the heavy reliance on foreign aid (which is in sharp contradiction with the collective self-reliance principle endorsed by the LPA). In June 1991, African leaders signed a treaty creating the PAEC over a transitional period of thirty-four years. In essence the treaty represents a revised version of the LPA and suffers, in turn, from three major weaknesses: inconsistency, overly ambitious objectives, and rigidity.

Interventionism While the market-oriented integration model was being carved out and experimented with in Western Europe and elsewhere, a radical political movement was gathering momentum in the Third World and preaching a new international economic order. A number of political fora—such as the Non-Aligned Movement, the Group of 77, and the Afro-Asian Solidarity Organization—were formed to strengthen the negotiating powers of the developing countries vis-a-vis the industrialized North. There followed a call for building Third World global, or at least regional or subregional, economic blocks to counterbalance the developed world. Broad SouthSouth cooperation was seen as a prerequisite for freeing developing countries from the biased and hampering influences of the industrialized countries. The thrust of this ideology, rooted in the dependency theory of Latin American origins, focuses on collective self-reliance (CSR) and aims at removing the links of less developed countries to existing international relations. The concept of CSR came out for the first time at the third summit conference of the Non-Aligned Movement, held in Lusaka, Zambia, in 1970. It was further developed at the fifth summit, in Colombo, Sri Lanka, in 1976; at the Group of 77 conference on economic cooperation between developing countries in Mexico City in 1976; and at the conference on technical cooperation between Third World countries in Buenos Aires, Argentina, in 1978. 1 Oteiza and Sercovich describe CSR as "an alternative type of development approach" that implies 1) the severance of existing links of dependence operated through the international system by the dominant countries, 2) full mobilization of domestic capabilities and resources, 3) the strengthening of links—collaboration with other underdeveloped countries, and 4) the reorientation of development efforts in order to meet the basic social needs of the peoples involved. 2

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This definition underlies the political implication that CSR in the short term represents a united and coordinated stance for developing countries in negotiations with the industrialized countries over the New International Economic Order. Over the longer term, according to Matthies, CSR aims at "systematic involvement of interdependent and symmetrical political, economic and socio-cultural structures and interchange relations between developing countries which are to bring about a gradual qualitative modification and partial elimination and replacement of the dependent and asymmetrical structures and relationships between developing and industrialized countries." 3 The economic strand of this strategy involves collective action against poverty, based on an entirely different understanding of development: satisfying basic human needs. Influenced by Marxist ideology, the CSR strategy does not recognize trade in general and believes instead in interventionism to firmly control productive activities in developing countries. Only horizontal trade and capital and technology transactions are recognized among developing countries. Emphasis is placed on horizontalization in the infrastructural fields of communications and information and of services systems at subregional, regional, and continental levels. Admittedly, this radical orientation of regional cooperation cannot be totally left to market forces. Instead, planning is advocated as the pertinent mechanism to lead to the more ambitious objective of comprehensive regional development. This does not necessarily imply, according to some scholars, a rigorous centrally administered economy of the Soviet type, but there is nevertheless a clear tendency toward imperative central planning. Planning is contended to have the merits of taking care of such delicate issues as (1) determining the appropriate scope and direction of trade, (2) development and specialization in operational terms, and (3) policy toward foreign investment and multinational or transnational corporations. Evidently, planning implies a high degree of state participation in controlling economic activity and a large measure of responsibility on the part of regional institutions. It requires more complex institutions, a wider scope for decisionmaking, and a greater commitment to regional cooperation. Some economists go even further and contend that a change in the basic social structure of society is needed before proper planning can be achieved. 4 It is these very requirements that represent the central weakness of this radical approach. They make it completely impracticable, given the inordinate political and socioeconomic heterogeneity of the Third World and the consequent lack of solidarity. For example, the simultaneous presence of oil exporters, low-income countries, threshold countries, conflicts and wars among adjacent states, etc., makes for an increasing divergence of interests between individual developing countries and their groupings, and thus for an erosion of solidarity vis-à-vis the industrialized nations. There

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is therefore a growing belief that cartels set up by developing countries based on the OPEC pattern are not likely to be of any danger because the conditions in the oil-producing states are singular and specific to this primary product. 5 The model suffers from another serious weakness: the lack of a functional technical system articulating realizable measures. It makes it extremely difficult, or even impossible, for CSR to be practically operational. The protagonists of this approach cannot argue this point and have admitted that "in several key areas the concept of CSR remains a pious exhortation without clearly conceived ideas which are capable of implementation." 6 For all these reasons, CSR has remained in the realm of theory. Even at that level, the credibility of this type of integration approach has been cast in doubt by the recent developments in the former socialist countries, where after three quarters of a century interventionism has been lowered into its grave.

The Lagos Plan of Action Having been a major cause of concern, the whole integration process in Africa has been put under scrutiny by state officials and scholars with a view to correcting its path. The lengthy process of examination began to yield results when African leaders in 1977 issued the Monrovia Declaration, committing themselves, among other things, to the following: •

• • • •

Promoting the economic and social development and integration of the African economies so as to achieve self-sufficiency and selfsustainment; Promoting the economic integration of the African region in order to facilitate and reinforce social and economic integration; Establishing national, subregional, and regional institutions; Working toward the establishment of an African economic market as a basis for an African economic community; and Drawing up annually specific programs and measures for economic cooperation on a subregional, regional, and continental basis.

Thanks to the OAU, the Monrovia Declaration was translated into a detailed and well-articulated program of action and was adopted by African heads of state and government at their extraordinary 1980 summit meeting in Lagos, Nigeria. Within the framework of the Monrovia Declaration, the Lagos Plan of Action identifies African development priorities in six major economic and social sectors: agriculture, industry, natural resources, transport and communications, trade and finance, and human

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resources. Also identified are measures in seven other areas: women and development, energy, science and technology, environment, less developed African countries, the strengthening of regional institutions, and development planning. For each of these sectors the plan elaborates specific measures to be implemented by African governments at national, subregional, and regional levels to tackle the major longer-term issues confronting African countries. 7 The plan adopts what can be described as a "mixed" approach to regional development, articulating functionalist as well as interventionist measures. On one hand, the plan calls for the gradual establishment of an African common market followed by the creation of an African economic community, mainly through strengthening the existing subregional groupings, establishing new ones, and introducing links between different organizations. The plan also calls for the elimination over time of all tariff and nontariff barriers to intragroup trade and for partner countries to give most-favored-nation (MFN) treatment to each other. The plan envisages a trade liberalization process for the continent as a whole to be undertaken in two stages: the establishment of a free trade area in each subregion, and the reduction of barriers to trade between countries belonging to different groupings. On the other hand, the plan places more emphasis on production as an engine of development. It accords higher priority to investment in production as a first step to the expansion of trade, not the other way around. Emphasis is placed in particular on industrialization, broadly defined, involving the establishment of links between industry and other sectors of production and between branches of industry itself. Given the small size of most African national markets, the plan calls for industrial cooperation at subregional and regional levels, with higher priority given to the development of core industries and the establishment of multinational enterprises, especially in basic areas. Another departure from the conventional functionalist approach relates to the mechanism of integration. Whereas the classical model relies heavily on market forces, the LPA calls for carrying out industrialization within the framework of operational planning at all levels, with public enterprises in this context seen as an important instrument side by side with private companies (which in turn were recommended to be further encouraged). The development of infrastructure is equally essential, particularly in the area of transport and communications. The fundamental principle of the LPA is national and collective selfreliance. This principle is translated into a number of objectives, including the satisfaction of basic needs and the attainment of self-sufficiency, particularly in terms of food, the creation of productive employment, the strengthening of African technological and managerial capabilities,

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African control of the vast natural resources of the continent, and a process of self-sustained development. 8 As such, the LPA represents a well-conceived framework for concerted action by African countries to put intra-African cooperation in the right direction. According to Africa's Priority Program for Economic Recovery 1986-1990 (APPER), the plan, if seriously implemented, would have minimized the ravaging effects of the current world recession on the African economies. 9 Unfortunately, this has not been the case. The challenge seems to have been much bigger than expected, resulting in very slow progress, if any, on that score. The APPER regretfully reported that the underlying philosophy, principles, and objectives of the LPA have been neither translated into concrete actions nor reflected in national development plans of the member countries. Furthermore, some scholars doubt that the measures recommended by the plan can be implemented before 2000. 1H The very problems calling for regional cooperation stand responsible for the slow progress on implementating this plan as well as the other cooperation efforts made by African governments individually and collectively. These problems invariably include structural imbalances, improper economic policies, and an unfavorable external environment. Specifically, the APPER identifies the following factors: 1 1 1. The colonial economic structure inherited by most African countries proved difficult to change radically so as to promote the African development called for in the LPA. These colonial economic legacies have been compounded by a host of other related international factors including the collapse of commodity prices, a stagnation and decline in official development assistance in real terms, the unprecedented high interest rates, the shift to a regime of sharp fluctuations in exchange rates, and increased protectionism. 2. National development plans and annual budgets of most African countries have tended to perpetuate and even accentuate their dependency through over-reliance on foreign resources; they have also led to the misallocation of domestic resources through reduced shares for such highpriority areas as agriculture, human resources, and industry, as well as to massive expenditures on foreign consumer goods and nonproductive investment projects. 3. There is not enough skilled labor within the member states, which has contributed to the inability of African countries to internalize the development process and ensure self-sustained development. As a result, most African countries have imported a large number of foreign high-level technicians and managers. 4. Extraneous factors unforeseen when the LPA was adopted have added to the increasing difficulties of African countries. Such factors

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include widespread, severe, and persistent drought; the acceleration of the desertification process; persistent and destructive cyclones in the Indian Ocean; and the intensification of destabilization attempts from South Africa on neighboring countries. 5. There are many structural obstacles, in particular a lack of complementarity, a narrow economic base, the. problems of landlocked countries, etc. 6. Political considerations—such as conflict situations, inadequate political will, and failures to honor commitments—have hindered progress. In addition to these factors, there are other serious obstacles to the implementation of the LPA. One such obstacle is the plan's inherent interventionist elements, particularly its adoption of production planning at various levels as a means of realizing regional development. Planning, by definition, deprives the governments of member countries of their autonomy in formulating national economic policies; this is not acceptable to most governments, given the nature of the political regimes in the continent. There are also some inconsistencies in the plan. Although it insists on "planning" production, it calls for "freeing" intra-African trade. It is difficult to reconcile "planned" production with " f r e e " trade. 1 2 Perhaps the most crucial factor responsible for the slow implementation of the LPA is the absence of a coordinator. To speed up the process of sound economic integration in Africa, there should be a strong body entrusted with orchestrating individual and collective cooperation efforts in the continent. Instead the plan gives the responsibility for implementing the measures spelled out for different sectors to the individual governments, an approach that is not practicable given the peculiarities of the continent and its obstacles. As will be discussed in more detail later, a powerful subregional community capable of monitoring the implementation of the plan is necessary.

The Southern African Development and Coordination Conference When the LPA was first being contemplated, a similar initiative to build regional cooperation in Africa on a rather different basis was in the making in the Southern African subregion. The frontline states in the subregion were seeking an appropriate means of counterbalancing the powerful Republic of South Africa (RSA). Their determined collective action was eventually crowned by the establishment in 1980 of the Southern African Development and Coordination Conference (SADCC). The heads of state of nine countries—Angola, Botswana, Lesotho, Malawi, Mozambique,

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Swaziland, Tanzania, Zambia, and Zimbabwe—issued what has become known as the Lusaka Declaration, whereby they committed their countries to a program of harmonious and coordinated development. The declaration invited international support, which would be sustained by regular consultations in the context of equal partnership in the pursuit of shared objectives. The countries immediately approved the program of action, giving the highest priority to the transport sector, which was seen as critical to the objective of reducing dependence on the RSA; they also identified a number of other strategic areas in which activities for economic development could beneficially be undertaken on a regional basis. The objectives of SADCC are more or less the same as those of other regional groupings. However, particular emphasis was placed on reducing dependence, particularly on the RSA, and on mobilizing resources from external sources. Specifically, the Lusaka Declaration sets out the following four principal objectives for SADCC: • A reduction in external economic dependence, particularly, but not only, on the RSA; • The forging of links to create a genuine and equitable regional integration; • The mobilization of resources to promote the implementation of national, interstate, and regional policies; and • Concerted action to secure international cooperation within this framework. Similarly, the organizational structure of SADCC resembles that of other regional organizations, except for its secretariat, which is very small in terms of size and responsibilities, and the fact that the technical sectoral units are managed by whatever government has been entrusted with coordinating a specific sector. The structure was established by SADCC heads of state at their meeting in Harare, Zimbabwe, in July 1981. It includes the following institutions: 13 • The annual summit meeting of heads of state. The general direction and control of the functions and objectives of SADCC are to be determined at these meetings. • The council of ministers, which meets two or three times per year and is responsible to the summit for designing the overall policy, coordination, and supervision of SADCC's activities, as well as for obtaining approval for projects to be included in the program of action. • The standing committee of officials, consisting of the permanent secretaries (or equivalent) of the ministers on the council. It collec-

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tively performs for the council the functions a permanent secretary normally performs for a minister, including the processing of budget and project proposals for council approval. These officials are normally the designated SADCC "contact points" in their respective countries. • The secretariat, which is the executive arm of the organization and is headed by an executive secretary, who is the principal adviser to the council of ministers. • The sectoral commissions, which may be created by the summit and established by an international convention ratified by the member states. To date, only the Southern African Transport and Communications Commission (SATCC) and, more recently, the Southern African Centre for Cooperation in Agricultural Research (SACCAR) have been established as separate commissions. Unlike traditional integration schemes, which are mainly based on a market-oriented strategy, SADCC's strategy is described as one of coordination, harmonization, and selective intervention. Coordination is seen as a means of achieving national objectives in a more rapid, cost-effective, and complete manner than is possible by isolated national efforts. To this end, SADCC allocates the responsibility for coordinating activities in different sectors to its member states. Its program of action covers a number of sectors or subsectors for which individual member states have been designated to assume responsibility. The sectoral responsibilities are delegated as follows: Angola: energy Botswana: agricultural research (SACCAR), livestock production, and animal disease control Lesotho: soil and water conservation, land utilization, and tourism Malawi: fisheries, wildlife, and forestry Mozambique: transport and communications (SATCC) Swaziland: labor resources Tanzania: industry Zambia: mining Zimbabwe: food security In 1986 it was agreed to include trade as a priority sector; Tanzania assumed this responsibility in addition to industry. The government responsible for coordinating a particular sector must organize the consultation process, provide a staff and office space, and finance the costs involved (except in the case of SATCC and SACCAR, which have their own secretariats and for which costs are intended to be

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met by annual contributions from all member governments or by foreign donors). Once a project reaches the implementation stage, the government of the country or countries where the project is located is responsible for negotiating financing; it enters into the necessary loan and other agreements and undertakes implementation. In the case of projects located in two or more SADCC countries, the sectoral coordinating unit is likely to play a more active role in financing and other negotiations. A salient feature of S A D C C concerns the role of donors in financing development projects in the region. Right from the beginning, S A D C C sought cooperation from the international community in mobilizing funds to implement its regional program. The annual consultative conferences to which international cooperating partners are invited are devoted to providing a mechanism for surveying results, evaluating performance, and agreeing on future plans. During these conferences plenary sessions and sectoral working groups are provided. The objective is to maintain a constant dialogue between S A D C C partner countries and the international donors. SADCC states themselves set their priorities and prepare for the conference an intensive set of sectoral documentation on overall sectoral goals, progress, and results, as well as new projects for financing. They also prepare an overview highlighting key issues beyond sectors and projects as SADCC sees them. Donors may choose from the list of projects to be financed but are not allowed to manipulate them or change projects or their locations. As of February 1986 S A D C C sectoral programs numbered thirteen, with over five hundred projects for which about $1.4 billion had been negotiated and another $1.4 billion was under negotiation, out of a total projected cost of about $ 5 . 5 - $ 6 billion. 1 4 For many sectors detailed programs were being articulated. For example, the transport and communications program concentrated on the upgrading, rehabilitation, and closing of gaps in regional road, rail, air, and pipeline links, as well as on the establishment of international and regional telecommunications links. As of 1983, the industry program included eighty-eight projects, of which fifty-five were deemed ready for immediate investment. The total cost was estimated at around $1.15 billion, of which $850 million represented external costs. By 1987 these estimates had risen to over $1.5 billion, with $1.3 billion, or 84 percent, required in foreign exchange. In 1982 a list of basic need areas was organized into sixteen priority subsectors in order to sharpen the focus of the industrial program and identify concrete priorities. 15 Following the Lusaka Declaration, which called for studies of existing payments and customs instruments with a view toward building the regional trade system, Tanzania submitted proposals regarding trade and related issues. Lists of products to be exchanged, together with their prices and quantities, were prepared for agreement by SADCC. The agreement would be enforced by

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means of export and import licensing based on destination and source. The member countries would grant each other preferential treatment. In the payments field, clearing arrangements were envisaged on a bilateral basis, with net debit balances to be settled as far as possible by exports of goods needed by creditors. The possibility of cross-clearing balances within the SADCC area was also explored. 1 6 - 1 7 Progress on S A D C C ' s program of action has reportedly been disappointing, particularly over the first half of the 1980s. In the transport sector, the Zatman road/highway went into liquidation in 1985; the MalawiBeira and Malawi-Nacala routes have been closed since 1982 and the Zimbabwe-Mapoto route since 1984. As of the beginning of the 1980s, practically all of Botswana's and Lesotho's trade was carried on RSA routes. The same was true for Malawi by 1985. The RSA routes also carried 60 percent and 90 percent, respectively, of Zambian and Zimbabwean trade by the mid-1980s. In S A D C C ' s second-priority sector, agriculture, the RSA leverage was increased, which further frustrated SADCC's efforts to build regional food self-sufficiency. 1 8 In the industry sector, only four projects had been completed by the beginning of 1987, at a foreign exchange cost of $188 million, with another requiring investments of $76 million at various stages of implementation. All in all, the projects completed or being implemented accounted for 20 percent of the total program drawn up in 1983. More striking is the fact that about 99 percent of the foreign exchange invested in the completed projects went into a single project—a pulp and paper plant—in Tanzania. 1 9 The trade sector was no exception. No decision was taken on the Tanzanian proposals concerning trade and payments. 2 0 The failure of S A D C C to achieve its objectives was reflected in the poor performance of the regional economy between 1980 and 1986. GNP per capita fell by 12 percent on average. As a percentage of GNP, debt almost doubled in the region. Whereas in 1980 none of the S A D C C states was eligible for IMF assistance, in 1986 Malawi, Swaziland, Tanzania, Zambia, and Zimbabwe all used IMF facilities. Food aid to the region more than doubled. 2 1 However, signs of progress on the implementation of SADCC's program have been in evidence since 1987. It is estimated that 63 percent of SADCC trade now goes through its own ports. Although this represents a decline of 17 percent from the 1981 level, it is a significant improvement (an increase of 70 percent) on the 1986 level. Zimbabwe increased its traffic through the Beira corridor by 13 percent between 1985 and 1986, thereby reducing its reliance on RSA routes to about 50 percent in 1987. Zambia has increased its copper traffic through the Beira corridor by 87 percent. Malawi has reduced its reliance on RSA routes to 50 percent. The Tanzania Zambia Railway (TAZARA) line returned to profitability in

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1985/86 (though operating at only 20 percent capacity), and the Benguela line has recently been reopened. Thanks to an improvement in weather conditions, agricultural production in some countries increased by 30 percent in 1988. The terms of trade for primary commodities (especially copper) improved after a big decline. As a result of these favorable developments, eight of the nine countries showed positive GDP growth rates in 1987/88, and there was a regional per capita growth rate of 1.4 percent between 1988 and 1989. 2 2 In 1985 S A D C C coordinated a series of reviews and established criteria for linked five-year sectoral perspective plans; it also produced a regional macroeconomic survey and a set of guidelines for the formulation of sectoral strategies. The intention was to develop sector-specific policy frameworks or strategies that would set out priorities, criteria for the evaluation of progress, and targets for achievements; there would also be greater operational coordination. External as well as internal factors in the S A D C C states and the grouping as a whole have been identified as being responsible for the generally poor performance. 2 3 Internal factors include inappropriate macroeconomic policies pursued by individual member countries without regional coordination (such as uncoordinated foreign and domestic investment plans), inappropriate investment strategies, overvalued exchange rates, excessive budget deficits, inefficient pricing systems, and too much reliance on detailed administrative controls. Major external factors are the destabilization of member countries by the R S A , which has cost $ 6 0 - $ 9 0 billion since 1980; adverse climatic conditions and a decrease in agricultural production, which required the use of foreign exchange reserves on food imports; and adverse terms of trade leading to increasing indebtedness and reduced assistance. For example, net nonconcessional receipts to S A D C C fell from $ 8 1 0 million in the early 1980s to $ 1 4 3 million in the late 1980s. The inability of S A D C C to coordinate with the PTA was also identified as responsible for S A D C C ' s failure to achieve its objectives, particularly in terms of trade and payments. As is well known, six member states (Lesotho, Malawi, Swaziland, Tanzania, Zambia, and Zimbabwe) are concurrently members of the PTA, which has established a clearinghouse and initiated its trade program aimed at the gradual reduction and eventual elimination of commercial policy barriers to intra-PTA trade. According to this program, trade in a group of listed products is accorded MFN treatment within the PTA area. The MFN clause prevents a S A D C C country that is also a member of the PTA from granting greater preferences concerning the listed products to its S A D C C partners than to its PTA partners. 24 The remote causes of S A D C C ' s poor performance can be traced to two major weaknesses: a small and weak secretariat and heavy reliance on

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external assistance. SADCC, being an ambitious grouping, needs to be served by a strong secretariat capable of efficiently coordinating national plans of member countries as envisaged by the Lusaka Declaration and as conceived in the next chapter. The allocation of coordination responsibilities to member governments creates several weak de facto "secretariats" in the grouping. S A D C C ' s concept of focal points implies that donors must discuss with one country the technical appraisal of a project located in other countries; this requires some adjustments in bureaucratic thinking and creates the technical difficulty of harmonizing specifications. The other weakness, the heavy reliance on foreign aid, is in sharp contradiction with the LPA, which emphasizes the principle of collective and individual self-reliance. The heavy reliance on foreign assistance further exposes the whole regional development to the common destabilizing external factors. It suffices to mention in this context that out of a total cost of $1,075 billion for fifty-two industrial projects, $840 million—or more than 80 percent—was paid for by external funds. 2 5 The implementation of these projects therefore hinges on the willingness of donors to provide the regional financing. Before leaving this point, it would be worthwhile to recall that foreign aid is not bad per se, but heavy reliance on it is undesirable because it is often a major source of instability. It is likely to be beneficial only when it is used prudently and within reasonable limits.

The Pan-African Economic Community As the impetus given to regional cooperation by the LPA died away, the leaders of the continent found it necessary to launch another initiative in order to maintain the momentum of the the cooperation process in the continent. At the June 1991 summit meeting in Abuja, Nigeria, the thirty-four African leaders endorsed a program of action covering many of the most crucial economic and political questions facing the continent. They signed a new treaty creating the Pan-African Economic Community (PAEC). The relevant timetable for creating the PAEC has been phased over a transitional period of thirty-four years, extendable to no more than forty years under all circumstances. The treaty envisages the creation of the PAEC in six stages. 2 6 Stage one involves strengthening the institutional framework of the existing subregional groupings and creating new ones where they do not exist within five years after the treaty comes into force. During the second stage, concerted regional action will be focused on the liberalizing intra-African trade, reinforcing sectoral integration, and coordinating and harmonizing activities of different subregional communities within the ensuing eight years. The third stage, covering ten years, will be devoted to setting up a

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subregional customs union, to be merged in the following two years, during the fourth stage, into a regional customs union. B y the end of the fourth stage, the time is believed to be ripe for promoting the regional customs union into a regional economic market in a period of five years, constituting the fifth stage. The common market will involve common economic policies and a liberalization of the movement of persons within its area. The common market is expected to develop automatically in the sixth phase, covering five years, into a pan-African economic community wherein the economic sectors will be integrated, an economic and monetary union will be established along with the African Monetary Fund and an African central bank, and a common African currency will be issued. In the last phase the African Parliament is to be established. The PAEC institutions include the annual conference of the heads of state and government, the council of ministers, the parliament, the economic and social committee, the court of justice, the general secretariat, (which is the same as the secretariat of the OAU), and the technical specialized committees. The PAEC seems to be nothing more than the LPA but with a new shape and a longer time horizon. The gradual approach conceived by the treaty is indeed commendable, but the designers of the project do not seem to have fully learned the lessons drawn from past experience with economic cooperation in the continent. The new treaty still suffers from inconsistency, confusion, and a lack of understanding of the realities of integration in Africa—the same factors that accounted for the multiplicity of similar previous schemes. For example, it is well known that a regional monetary fund, being a close substitute for a regional central bank, is usually created to handle (among other things) the exchange rate and balanceof-payments needs, typically the same functions assigned to a central bank. Given that the ultimate objective of the PAEC is to create a regional central bank and to issue an African common currency, why, then, will an African Monetary Fund be established? Another weakness concerns setting a rigid timetable for a long-term objective. The treaty specifies the time length of each phase up to the year 2 0 2 5 , which is totally impracticable. Prediction, and hence planning, are difficult in general and almost impossible in an uncertain African context; this is an important lesson drawn from the very experience of the LPA and other cooperation schemes in the continent. The analysis undertaken so far in this book demonstrates that no timetable set by any African grouping has been adhered to. Nothing can guarantee that this will not be the case with respect to the PAEC. However, the most serious weakness is the wide gap between the ambition of the treaty and the continent's realities. The objectives set for each stage still fall in the realm of aspirations far beyond the capabilities of the

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continent. This is further evidence that past experience with economic cooperation in Africa has not been carefully studied. The PAEC is a mere copy, though on a larger scale, of the existing unworkable integration arrangements in the region. What Africa really needs is a comprehensive revision of the existing cooperation efforts, with a view toward putting the integration process in the continent in the right direction. Objectives need to be realistic and attainable, and respective timetables should be flexible and easy to handle. Proposed future action in this context constitutes the subject matter of the next chapter.

Notes 1. See Matthies, V., "Collective Self-Reliance." 2. Oteiza, E., and F. Sercovich, "Collective Self-Reliance: Selected Issues." 3. Matthies, V., "Collective Self-Reliance." 4. See Axline, W. A., Caribbean Integration. 5. Matthies, V., "Collective Self-Reliance." 6. See Gunatilleke, G., "UNCTAD IV and the Third World Scenario." 7. OAU, The Lagos Plan of Action for Economic Development of Africa. 8. Rossen, S., "Aspects of Economic Integration in Africa." 9. OAU, Africa's Priority Program for Economic Recovery 1986-1990. 10. David, F. L., "African Development in the Mid-1980s." 11. OAU, Africa's Priority Program for Economic Recovery 1986-1990. 12. Rossen, S., "Aspects of Economic Integration in Africa." 13. See Barry, A. J., "Southern Africa: Southern African Development Coordination Conference (SADCC)," in Aid Cooperation and Aid Effectiveness. 14. Green, R. H., "Building Economic Regionalism in Sub-Saharan Africa." 15. Mulaisho, D. C., SADCC. 16. Rossen, S., "Aspects of Economic Integration in Africa." 17. R. H. Green adds that the idea of cross-clearing balances within the SADCC area was dropped to avoid an overlap with the PTA clearinghouse. 18. Bowen, B., "The Southern African Development and Coordination Conference." 19. Mulaisho, D. C., SADCC. 20. Rossen, S., "Aspects of Economic Integration in Africa." 21. Bowen, B., "The Southern African Development and Coordination Conference." 22. Ibid. 23. Mulaisho, D. C., SADCC. 24. Rossen, S., "Aspects of Economic Integration in Africa." 25. Ibid. 26. See the Abuja Treaty on the Creation of the Pan-African Economic Community.

A PROPOSED WAY FORWARD

This volume's analysis of the causes of failure of African cooperation efforts and reorientation initiatives casts serious doubt over the future of regional cooperation in the continent. Is there any real hope left for fruitful cooperation among African countries? If so, what can possibly be done to get it working? Addressing the future is admittedly full of pitfalls. Even though prediction techniques and instruments have been substantially developed, the future is of course still uncertain. The art of prediction is largely dependent on certain conditions remaining constant, which is not very reliable in today's rapidly changing world. The world politico-economic order is currently being dramatically reshaped, and the future of international relations is still up in the air. The bipolar world system has given way to a new system of only one superpower. The former socialist countries in Eastern Europe, together with the European republics of the former Soviet Union, will sooner or later be absorbed in the Grand Europe. Other parts of what used to be the Soviet Union will join the Third World, which the newly industrialized countries in Asia and Latin America are beginning to step away from. Instances of both integration and disintegration are in evidence in many parts of the world. In short, the legendary changes taking place in today's world invalidate the ceteris paribus condition and therefore make prediction exercises highly questionable. In particular, prediction is extremely difficult in the African context. Civil wars and disintegration tendencies are now common in many parts of the continent. The winds of democratization are blowing fast over the region. Calls, sometimes violent, for multiparty systems and drastic political changes are becoming loud almost everywhere in Africa. In addition, unpredictable factors, notably climatic conditions and international markets for primary commodities, are highly influential in the unfortunate African region. Finally, there are the myriad problems stemming from the continent's peculiarities, not to mention the persistent structural disequilibria, the pervasive poverty, and the crippling debt burden. All these factors 91

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combined have the negative effect of blurring one's vision and thus making it extremely difficult to assess the continent's future accurately. Perhaps by virtue of this intricacy, most of the intellectual work undertaken so far on intra-African cooperation has focused on examining past experience rather than on a future perspective. Some good future-related ideas have definitely been addressed, but no articulate blueprint has, to my knowledge, been worked out yet. This chapter does not claim to come up with a detailed blueprint for future action on regional cooperation in Africa. Rather, given the difficulty of making predictions, particularly in the context of Africa, it merely tries to sort out, in the light of past experience, some key ideas representing a broad but realistic framework for future cooperation among African countries. The proposed framework is essentially based on the findings of the previous chapters. It is useless to continue with the classical laissez-faire integration model that has been adopted throughout. As past experience and academic writings indicate, the model has proved not only insufficiently workable but even harmful to the integration process in Africa. It is equally hard to recommend the radical interventionist alternative, at least in the foreseeable future; its political and economic requisites are practically impossible. The recent exciting developments in the former socialist countries—indicating, among other things, the bankruptcy of interventionism—go a long way in support of this argument. The initiatives of the LPA and SADCC are not complete. Both suffer from, inter alia, the absence of a strong organizational body capable of monitoring their respective implementations. In addition, S A D C C is too heavily reliant on foreign aid, a sharp contradiction to the principle of collective self-reliance called for by the LPA. The PAEC has just been launched but has little chance of success. What is therefore needed in light of the above findings is an articulation of realistic measures in the short and medium terms with a view toward paving the way for an eventual smooth and sound integration of regional economies. In a nutshell, regional cooperation should be dealt with as a long-term process to be carefully handled over an extended time period. As a first stage, focusing largely on short-term objectives, action should be concerted to rationalize the existing organizations so as to have in each subregion only one economic community, which would be mainly entrusted with the task of orchestrating cooperation efforts within its area. The main thrust of the cooperation drive should, in a second stage, be focused on harmonizing the national development plans of member countries as a step toward fully integrating regional economies in due course. The harmonization process should take advantage of the IMF/World Bank-sponsored structural reform policies currently being implemented in almost all African countries. Particular emphasis should be placed on privatization programs and debt/equity swaps.

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The proposed scenario needs to be buttressed by three main pillars in order to begin functioning effectively in Africa: an efficient payments mechanism, a more active role for the African Development Bank and other donors to play in the integration process, and the firm political will of African leaders. In the following sections the rationalization and harmonization processes and their respective requirements are discussed in detail.

Rationalization The need for rationalization arises from the unhealthy multiplicity of overlapping cooperation schemes in the continent. Having only one strong community to monitor integration efforts in each subregion would help eliminate functional duplication, competition, and rivalry within the subregion. It would also enable member countries to make the most of the limited financial, material, and human resources available to the subregion. This process necessarily entails merging similar arrangements, phasing out unimportant ones, and coordinating the activities of dissimilar organizations. Such a process is desperately needed in West Africa, where according to the ECA, there are about fifty intergovernmental organizations (IGOs) dealing with overall economic integration (e.g., CEAO, the MRU, and ECOWAS), river basin development (e.g., the Gambia River Development Organization), or certain limited sectoral activities (e.g., the West African Rice Development Association). It is almost unanimous among scholars that CEAO, the MRU, and Senegambia should be absorbed into the larger grouping ECOWAS. This has been plainly called for in academic writings (e.g., Robson, Asante, and Onitiri) and has attracted the attention of policymakers in the subregion. Efforts are currently being made in this direction, but there is an undue hesitancy in the part of countries to take concrete measures on the rationalization process, which according to the proposed framework herein, is to be completed in the short term. In November 1984 the ECOWAS heads of state requested that a study be undertaken on the structure and the operational mechanisms or scope of action of the existing West African IGOs, with a view toward eliminating, merging, and reassigning tasks; the study was to include proposals on management, personnel, financial, and other resource requirements, as well as the procedures and practices of the IGOs to be retained. ECOWAS also requested a review or adaptation of the legal instruments of those West African IGOs to be retained, with a view toward proposing necessary modifications consistent with the philosophy and orientation of the subregion's new economic community. These studies have been completed but are still under consideration by the ECOWAS authorities. 1

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In parallel with ECOWAS, the Association of West African IGOs was established, taking the Multinational Programming and Operational Center (MULPOC) as secretariat. At its fifth meeting of the council of ministers, in September 1982, the association requested MULPOC to undertake a comprehensive analysis of the activities, plans, and programs of West African IGOs. The analysis would identify areas of duplication and neglect and would make proposals for rationalizing and coordinating their activities more effectively to accelerate the process of economic integration in West Africa in conformity with the LPA. At the sixth summit conference of ECOWAS, in May 1983, the authority confirmed this initiative and requested the ECA to finalize the study and submit it to the ECOWAS officials. The study was completed and considered by the ECOWAS council of ministers in November 1984. The council requested the executive secretary of ECOWAS to undertake an additional study with the assistance of the ECA. The completed study was discussed at a joint meeting in September 1987 of the member states and the West African IGOs concerning the rationalization of West African integration efforts; at this meeting it was recommended that the ECOWAS authority (1) reaffirm at the level of each IGO the commitment to a single economic community in West Africa, (2) take into account the existence of IGOs in the subregion when working out the political framework for the new community structures, and (3) commission additional studies with a view toward achieving the effective rationalization of West African integration efforts. 2 The same situation is found in Central Africa. Both UDEAC and CEPGL should be merged with the similar but larger ECCAS. No efforts comparable to those made by West African states are so far under way in the subregion. In the East and Southern African subregion the situation is made a bit difficult by the coexistence of two seemingly different groupings: the PTA and SADCC. The PTA is a classical market-oriented arrangement, whereas SADCC is a radical and production-oriented one. In essence, though, the two groupings are nevertheless more complementary than competitive, a fact that would eventually help facilitate their merger. The PTA focuses on liberalizing intragroup trade and has a strong secretariat as well as a relatively successful clearinghouse. SADCC, on the other hand, places greater emphasis on production but suffers from the absence of a powerful secretariat and an efficient payments mechanism. If the two arrangements were merged, the strong secretariat and clearinghouse of the PTA would serve the new community, which in turn would streamline its activities so that they would move on a parallel basis on all fronts, particularly in terms of trade, production, and infrastructure (as detailed below). The role of donors would also be dealt with in a manner discussed later.

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T h e need for merging the PTA and SADCC, and perhaps SACU in due course, will be felt particularly strongly after the adoption of majority rule in the RSA. SADCC will automatically lose its raison d'être, having essentially been established to counterbalance the RSA. The " n e w " black-ruled RSA will in turn automatically join both organizations in addition, of course, to SACU; this further necessitates rationalization of the three arrangements. 3 Six countries (maybe more in the future) are concurrently members of both the PTA and SADCC, as indicated earlier. In addition, Botswana, Lesotho, Swaziland, and the RSA are members of SACU. Mindful of these concerns, the leaders of the region have recently moved toward streamlining the existing arrangements. Following the end of apartheid in the RSA, the Frontline States have decided to transform SADCC into the Southern African Development Community (SADC). The S A D C C summit of heads of state held on 17 August 1992 at Windhoek, Namibia, adopted the treaty establishing SADC. The treaty provides for the accession of new member countries and has as its objectives the development of the member states, the promotion of the defense of peace in the region, and greater economic cooperation based on equity, justice, and mutual interests. The ultimate objective of the new S A D C is to promote collective self-sufficiency and integration. The PTA, in turn, has taken a bold step in the right direction. At its meeting in June 1992, in Lusaka, Zambia, the PTA summit recommended that the PTA and SADCC be merged to form a single common market for East and Southern Africa within the framework of the Abuja Treaty on the Pan-African Economic Community (PAEC). Of course, the North African subregion does not need such a rationalization process. There is only one multilateral grouping: the newly formed MAU. All that is needed is to get this grouping enlarged so as to include other countries in the subregion and to push it forward to catch up with the other subregional communities. In all cases there should be strict coordination between the proposed community and the existing monetary arrangements. This is particularly important in West and Central Africa, where there exist the most successful monetary unions in the world. If each monetary union could be extended to cover the whole subregion, as is now being attempted in West Africa, clearing arrangements would automatically be phased out, and the integration in due course of the two subregions would be facilitated to a large extent. Finally, coordination is needed between the economic community and other, dissimilar organizations, particularly the research and training centers, in each subregion. The activities and programs of the latter institutions should be reorganized and reformed so as to be in harmony with those of the community.

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Harmonization Whereas the classical model relies mainly on market forces in the integration process, and the interventionist approach, having no confidence in market forces, instead puts its faith in comprehensive regional planning, the centerpiece of this book's suggested scenario has to do with the harmonization of national development plans of member countries, an approach close to that adopted by SADCC. The main difference between this book's approach and that of SADCC is that the latter allocates the responsibility for harmonizing different sectors to different partner countries, whereas the suggested approach entrusts the community itself with harmonizing all sectors. This would help circumvent the shortcomings of S A D C C ' s approach, notably the multiplicity of small and weak sectoral secretariats, the complicated bureaucracies, and the absence of a strong central coordinator. The ideal procedure in this context would be for the member countries to submit their national plans for harmonization to the community, which sets for itself relevant criteria as recommended below. However, the member countries would most likely be reluctant to surrender their sovereignty and give up their plans to a supranational institution. This might also lead to wasting time in the harmonization process, given the limited personnel and heavy workload of the community. A realistic alternative would therefore be to get the community to undertake relevant studies so that the community can give each member country a set of guidelines and criteria to take into account in the preparation of national development plans. To enable the community to follow up as necessary, it is recommended that the community be given status as an observer. To this effect, a contact point in each member country needs to be created to liaise with the community. In this context, S.K.B. Asante proposes that each member of ECOWAS have one ministry solely responsible for monitoring and coordinating the external economic cooperation activities of all other government departments and agencies. In addition, a ministerial coordinating committee made up of all the economic ministers should be formed to review all major economic cooperation policies. 4 This suggestion seems fairly plausible and can therefore be recommended for all subregional communities. The community, in collaboration with the proposed ministries, would be responsible for monitoring the implementation of the harmonized plans. Contrary to past approaches that focus on a specific sector as a spearhead for regional development, the harmonization process should involve concerted action on a wide front. s The subregional communities must insist on a parallel harmonization of national development plans with respect to markets, the productive base, and infrastructures. This would ensure that the beneficial effects brought about by movement on a wider front

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will outweigh the likely negative effects. It would also speed up the process of integration through the large network of interrelationships among various sectors. For example, the integration of infrastructures would help integrate the subregion's productive base and markets by providing relevant facilities and services. At the same time, the integration of production structures would push forward the integration of infrastructures and markets by making material and financial requirements available. Finally, liberalization of intra-subregional trade would in turn accelerate integration measures in the other two sectors. The proposed subregional communities are therefore expected to push forward the liberalization programs.currently being implemented that involve the gradual reduction and eventual elimination of tariff and nontariff barriers, the adoption of common external tariffs, and the free movement of production factors. It is also important to lower the required level of equity participation by nationals in manufacturing industries and in general simplify the rules of origin. Finally, compensation funds need to be supported fully with adequate resources enabling them to perform their functions properly. By and large, the LPA provides a detailed list of measures to be taken in this context. In parallel, multilateral infrastructural projects should be identified and implemented promptly. As a matter of fact, without the integration of physical, social, and institutional structures to provide the enabling environment for regional integration, no breakthrough in the whole integration process can be made. Candidate sectors in this regard are transport and communications, energy, and institutional infrastructure for research. Relevant measures to be taken in this connection are also spelled out in detail in the LPA. 6 The integration of production must still be the backbone of the whole integration process because it yields veritable benefits, notably those of economies of scale. Given the natural complementarities of endowments in the subregion, an integration of production structures would also generate new forward and backward linkages in the process of regional development. It is further argued that this kind of integration would alleviate the persistent financial and material constraints because it would enable member countries to pool resources and establish multicountry programs in such areas as iron and steel and the development of lake and river basins. There is a consensus that priority must be given to certain production areas to ensure the greatest possible satisfaction of the basic needs of the African masses. An important area is food production, with a view toward the attainment of self-sufficiency, the most urgent objective of economic policy in Africa. Another important priority area is agreed to be the production of intermediate and capital goods such as iron and steel, machine tools, fertilizers, chemicals and pharmaceuticals, and building materials, as well as agricultural, transport, and construction equipment. 7

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More attention should be given, as part of the harmonization process, to the regional projects. Based on criteria set by the agreement establishing the African Development Bank, there are two categories of regional projects: those that jointly concern two or three countries and therefore constitute truly multinational projects, and those that increase economic complementarity among countries (i.e., national projects with regional implications). The first category includes joint projects that form part of a common investment program and projects physically situated in one or more countries but involving joint investments undertaken and guaranteed by different countries. The second category comprises national projects forming part of a subregional investment program, projects that are situated in one country but utilize as inputs the goods and services from two or more countries, and projects established in one country with a view toward achieving a balanced distribution of investments among participating countries. The harmonization process should also take advantage of the reform policies now being implemented in many African countries. These policies—including in particular structural adjustment programs, privatization, and debt/equity swaps—can be used to alter sectoral priorities on a subregional basis. The following subsections elaborate upon these major policies. Structural Adjustment

Programs

Over the 1980s quite a number of African countries embarked on IMF/ World Bank-designed or -supported structural adjustment programs (SAPs). The thrust of a typical IMF/World Bank SAP is directed to financial liberalization and deregulation of markets with a view toward redressing financial imbalances and enhancing economic growth. Specific measures invariably include, among other things, liberalization of all prices, including exchange and interest rates and prices of goods and services; incentives offered to producers and exporters; rationalization of public expenditures; and restructuring of the public sector. The latter measure involves altering the input demand of domestic industries in favor of domestic raw materials, removing government subsidies for ailing industries, and, in some cases, planning to rationalize production by closing down plants and factories whose demand for foreign exchange can no longer be justified in terms of their contribution to the national economy and the welfare of the population. Most of these measures can be implemented on a subregional basis, thereby ensuring the success of the SAPs on one hand and pushing ahead the process of subregional integration on the other. For example, special incentives can be offered to exports destined for other member countries

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and to producers who procure their production inputs from other partner states. The rationalization of parastatals can be highly beneficial when done at the subregional level. Given the narrowness of national markets and the complementarity of member economies, the secretariat can jointly undertake with the respective authorities a series of feasibility studies of existing industries in member countries, on the basis of which ailing or unfeasible plants and factories can be closed down and those having a comparative advantage can be maintained and developed to serve the whole community. A third important area of action concerns the liberalization of exchange rates. This can be made in a global manner so as to ensure limited convertibility between the currencies of the member countries, a significant step on the way to introducing full convertibility of national currencies. This would to a large extent help facilitate, inter alia, expanding intragroup trade. Finally, fiscal reform can be guided by the common objectives of the grouping, which would help speed up liberalization of intragroup trade. As a matter of fact, the performance of SAPs on a subregional basis provides a good opportunity to consider seriously the implementation of trade liberalization as well as other integration measures, which up to this point has been very slow. Privatization Privatization on a subregional basis would give powerful impetus to the integration process. The role of the private sector had long been called into question before the late 1970s. In socialist countries, public ownership of the means of production is an inherent part of the Marxist strategy for social justice and equity. In the developed market-economy countries, the Great Depression of the 1930s and the relevant academic writings of eminent economists convinced governments to place great faith in the public sector as a potent instrument of sustaining stable economic activity over the course of business cycles. Expectedly, this confidence in the public sector spilled over to developing countries. The underdeveloped state of the indigenous private sector and capital markets in many countries and the fear of the power of multinational companies and their identification with the colonial past in some cases combined to convince governments that only they had the resources and purpose to promote development. Contrary to expectations, the performance of public-sector enterprises has largely been disappointing. Experience shows that almost everywhere in the world, the state-owned enterprises have led to an inefficient use of scarce resources and represented a drain on the public funds, which has given rise to large budget deficits, high inflation rates, and external imbalances. This situation has been particularly bad in the Third World, whose treasuries have effectively been bankrupted by public companies. 8

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Several factors have been identified as responsible for the failure o f the public sector; chief among them is the heavy bureaucracy that manifested itself in many respects. For example, prices set low to benefit consumers have discouraged producers, creating scarcities and increasing reliance on imports. Credit allocation and subsidized interest rates have resulted in a bias toward capital-intensive industries. Low-yielding public investments and inefficient public enterprises have slowed growth and contributed to expanding public debt. Neglect of maintenance has led to a rapid deterioration of public assets. Excessive and poorly designed and implemented regulations have contributed to growth in the underground economy. Trained public servants are in short supply—and hence overworked—in light of many developing countries' growing demand. 9 For these reasons it is believed that the public sector will always tend toward inefficiency because it cannot go bankrupt and therefore has no compulsion to compete or excel. The new tendency is to let the private sector push back the frontiers o f the state. As a result, privatization has turned fashionable worldwide since the early 1980s. Quite a number of developed and developing countries have exercised privatization in one way or another. Even socialist countries have strikingly sacrificed ideology to pragmatism and begun a destating process in their economies. This tendency has been welcomed and strongly encouraged by leading international organizations. Since 1 9 8 6 a World Bank department has dealt with measures to improve the efficiency and competitiveness of the private sector and the economy as a whole. The African Development Bank, too, has recently given much attention to the issue. 1 0 African countries are strongly urged to benefit from the lessons given by the extensive worldwide experience with both public and private sectors. They are invited to speed up the process o f financial liberalization and market deregulation currently being implemented within the framework of SAPs. This would create the enabling environment to promote the private sector. Equally important is to encourage new private investments and eliminate public monopolies. The possibilities of divestiture are further recommended to be explored. In practice, privatization has taken a variety of forms. One such form is the outright denationalization of stateowned enterprises, either by selling them back to their former owners or by initiating new share systems. The latter case presupposes the existence of well-functioning capital markets. Another form involves contracting out or franchising the production of state-financed goods and services to private firms. A third form has to do with deregulation, or the introduction of competition into statutory monopolies. This form is a sort of market loosening that allows private enterprises to compete with parastatals in the supply of goods and services. Finally, there is the "hiving o f f ' of state enterprises into cooperatives owned and managed by their respective

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workforces. This option presupposes an adequate level of technical and managerial expertise on the part of the workforce, as well as sufficient working capital and supporting services. Some writers argue that privatization is more viable for developed countries than for developing ones. The argument is that the former group of countries have diverse enterprises that are suitable candidates for divestiture, whereas the latter countries lack such diverse enterprises. 1 1 There is also a consensus that direct government involvement in the development process is needed in the early stages. In Africa, there is only a handful of "relatively" developed countries, such as Cote d'lvoire, Nigeria, Kenya, Zimbabwe, Algeria, Morocco, and Egypt, all of which have more advanced financial markets. Other countries are still at the early stages of development, lacking organized capital markets and adequate skills and expertise. This latter group of countries should maintain the public sector, for the time being, as a reliable means of carrying through the initial stage of development. For the countries with more developed capital markets, though, privatization seems more advisable. As a general rule, it is better to confine the public sector to the core industries and to withdraw it from those activities normally left to the private sector. Public enterprises in nonstrategic activities can be sold or, if necessary, liquidated. It is all the same whether the sale is made to the private sector, to the public through new share flotations, or to the respective workforce. In the cases of initiating new share flotations or selling to the workforce, a ceiling can be imposed on the individual share holdings so as to widen the ownership base and minimize private monopolies. The proceeds of the sale can be used to support the "strategic" parastatals, finance the budget deficit, and/or pay off public debts. Pending the divestiture of the "strategic" public-sector enterprises in both groups of countries, their performance can be improved by other, less drastic measures. Only core activities, those of vital public interest, need to remain under the control of governments; other parastatals are better contracted out to the more efficient private sector, or at least deregulated so as to allow the dynamic private firms to compete side by side with parastatals in the market. In parallel, the private sector should be encouraged and paid more attention so as to allow it to accept the greater burden of economic development. Finally, there is the possibility, in the long run, of linking the divestiture of state-owned enterprises with both the repayment of public debt and the promotion of domestic capital markets. The sale of parastatals through share flotations would lead to an expansion of domestic capital markets, which in turn would help facilitate in due course the privatization process. At the same time, debt conversion schemes can effectively be handled to boost the two processes while partially resolving the debt problem. To this

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end, governments can get rid of a considerable portion of public debt as well as a good number of nonstrategic parastatals by initiating share flotations, thereby expanding, in parallel, domestic capital markets. Appropriate regulations can be devised to contain the likely side effects of the tripartite process, notably private monopolies, foreign domination, capital flight, and inflationary pressures. 12 Given the narrowness of national markets and the relatively weak private sectors in most African countries, the privatization exercise can efficiently be undertaken on a subregional basis. This would ensure the success of privatization, on one hand, and foster the process of regional integration on the other. For example, the outright selling of parastatals can be made to nationals of all member countries, not only those of the state where the companies exist. This would promote and strengthen a strong and reliable subregional private sector. It would also help expand the subregional capital markets, a sine qua non for sound economic development. Parastatals may also be contracted out to private firms in other member countries, which would ensure the maximum use of subregional skills and expertise. Finally, deregulation is better considered on a subregional basis. Private firms of all member countries can be allowed to compete side by side with publicly owned enterprises in the production of goods and services in each member country. This would eventually lead to the results mentioned above, i.e., encouraging the private sector, expanding subregional capital markets, and making maximum use of the skills and expertise available to the subregion. In addition, privileges given to the national private sector in each member country, in the context of the financial liberalization and market deregulation policies currently being implemented in African countries, can be extended to the private sectors of other member states. The end result of all these proposed measures would be to bring into effect the principle of collective self-reliance called for in the LPA. Debt/Equity

Swaps

Debt conversion schemes, currently under consideration worldwide to alleviate mounting debt burdens, can be boosted and can yield positive effects on regional integration if they are handled on a subregional basis. When the debt crisis came into the red by the middle of the 1970s, a menu of options was proposed to debtor countries in an attempt to work around it. Much of the menu had to do with debt conversion, including debt/equity swaps, debt/quasi-equity swaps, and debt securitization. The idea of debt/equity swaps is to convert (either directly or indirectly) the old fixed debt owed to commercial banks into direct foreign investment. Debt conversion takes place when a lending bank cancels a part of its loan

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to an institution in a debtor country in exchange for an equity stake in that institution. Indirect conversion occurs when a creditor bank sells its loans at a discount to a foreign investor, who may be able (1) to exchange his or her claims for local currency at its full face value or at a lower discount than the one obtained at the time of purchase, and (2) to use the proceeds to finance the local costs of the investment. Debt/quasi-equity swaps involve the conversion of a fixed debt into shares in a country's export earnings. The instrument originally suggested to accomplish this was called the export participation note (EPN). In view of the shortcomings of this scheme, it was soon transformed into a more narrowly focused approach linking debt payments to the price of exportables rather than export earnings, and it was limited to particular export commodities with special marketing characteristics and price prospects. The instrument of the new scheme is called a commodity bond, which is a security whose returns (as either interest or redemption value or both) vary with the price of a commodity or a specified basket of commodities. A more radical option involves converting the old fixed debt into new bonds, guaranteed by certain arrangements, rather than converting it into a direct foreign investment or other participation forms. Prominent versions are the Mexican and A D B schemes. The Mexican formula sought to exchange up to $20 billion of old debt for $10 billion of new twenty-year bonds backed by an issue of zero-coupon U.S. Treasury securities. The new bonds would be swapped for the old debt at rates that reflect its value on the secondary market. All five hundred creditor commercial banks were invited to tender for the new bonds at auctions organized by the Mexicans, with the United States watching the results. Under the A D B plan a debtor country would negotiate with its creditors on the annual level of total debt service that the country could afford, based on past experience and projected foreign exchange earnings. Creditors would be offered notes with the face value of the old debts, to be redeemable at face value after twenty years, which could be prolonged in some cases to twenty-five or thirty years. Full repayment of the principal on maturity would be guaranteed by a sinking fund, into which the debtor country must pay an agreed proportion of exports every year. The fund would be managed by a trustee board comprising representatives of the creditors, debtors, and such multilateral institutions as the IMF, the World Bank, and the ADB; it would be administered by the Paris Club. The board would manage the assets in the fund, review the debtor's economic performance, and propose appropriate adjustment measures. Transfers to the fund would be made directly through automatic deductions from certain exports. 1 3 Of the three debt conversion options, only the debt/equity swaps can boost the process of regional cooperation. The merit of this form of debt conversion is that it creates no financial obligations for the debtor country

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if the project fails (contrary to the original debt, which involves such obligations). Foreign exchange costs will be incurred by the host country only when the investment is profitable and the investor remits dividends abroad. In addition, by selling old debts at a discount, debt conversion has the effect of reducing the debt burden. Moreover, it would allow the debtor country to benefit from secondary market valuation of bank loans. There is also the potential of bringing back flight capital. As long as the premium on the parallel market for foreign exchange is lower than the discount on the traded debt, residents would find it advantageous to repatriate assets held abroad through debt conversion. Finally, because the proceeds of the conversion are used to finance new investments, debt conversion may have such indirect benefits as disseminating technical and management skills and promoting local capital markets. The likely side effects of the debt/equity swaps can easily be handled. It is argued, for example, that in some cases foreign investment would have taken place regardless of the conversion scheme. To deal with this situation, some countries require foreign investors to bring in foreign exchange beyond that used for the conversion. With respect to the possibility that foreign investors might be induced to repatriate their funds soon after the swap has taken place, almost all countries have prohibited disinvestment and profit remittances for a certain period of time following the swap. Even the adverse effects the conversion might have on the money supply, particularly the expansion of domestic liquidity, have been neutralized by central banks through appropriate policy measures including, as in the case of Brazil, the setting of certain ceilings on the money auction. Though generally viable for many developing countries, debt/equity swaps are bound to be of limited applicability in individual African countries. First, the process is applicable only to debt owed to commercial banks and not to debt owed to governments or other official creditors. In this context, A. A. Halim reports in ACMS Financial News Analysis (April 1988) that an overwhelming portion of African countries' debt—estimated at 90 percent for the twenty-two "debt-distressed" African countries—is owed to official creditors, which limits the potential of conversion for individual African countries. Second, albeit small in relative terms, Africa's external debt to commercial banks is estimated to be three times as large as the stock of foreign direct investment in the region, which means that tradable debts under these schemes cannot easily be accommodated in a given African country. Third, conversion on a massive scale may imply a radical shift in the ownership of enterprises in African countries, which may not be acceptable to most governments. Fourth, even if these swaps could in one way or another be accommodated in, and acceptable to, African countries, foreign investors might be reluctant to invest in Africa

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for the simple reason that African countries are at a disadvantage in attracting foreign direct investment. Depressed prices for primary commodities, the most attractive investment field to foreigners, severely limit the prospects for new projects in this field. Potential domestic markets, in terms of population and/or income, are also limited. The possibilities of producing exports usually compare unfavorably with those of other developing countries. Finally, many African countries are geographically disadvantaged, being either landlocked or very distant from developed countries' markets. Handling the debt/equity swaps on a subregional basis would help remove most of these limitations, thereby making the exercise viable in the African context. Doing so would produce other beneficial effects as well. The most important of these effects involves, inter alia, facilitating the implementation of privatization programs, which in conjunction with debt/equity swaps would promote subregional capital markets. These markets would in turn, as indicated earlier, move the two processes forward through feedback and other effects. Additional benefits include enabling debtor countries to get rid of part (albeit a small part) of their heavy debts; bringing back flight capital that belongs to the community nationals, which would in turn provide some relief of the balance-of-payments deficits; strengthening private sectors in member countries so that they may assume the leadership of regional development; and encouraging foreign capital to come in and further boost the development process. The end result would be to put the principle of collective self-reliance into effect. The subregional communities are therefore invited to collaborate with the member governments in undertaking debt/equity swaps at the subregional level. They can apply, for example, the Brazilian formula initiated in 1988 or a modified version of it. Under the Brazilian scheme, creditors can sell their loans at auctions in which those offering the auctioneer the largest discount will win the right to convert their loans. The purchaser can invest the money directly in a company of his or her choice or in a special conversion fund. The funds buy small stakes in companies quoted in the stock market and are obliged to keep this capital invested in Brazil for twelve years, although they can remit dividends abroad. Direct equity investment is subject to some restrictions: investors are not allowed to transfer a Brazilian company's ownership abroad, investments are not allowed in companies that have repatriated capital in the previous three years, and investment cannot be used to acquire an existing foreign asset unless the seller reinvests the proceeds in Brazil. In order to contain the effects of the conversion on the money supply, conversion is limited to $150 million every month, and half that amount must be invested in development areas in the north of Brazil. 1 4

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Payments Mechanisms For the strategy discussed above to be successfully operational, it will need to be buttressed by an efficient payments mechanism. As a matter of fact, no breakthrough can ever be made in the context of regional cooperation in the absence of such a mechanism. As previously shown, African countries suffer from intractable payments problems, notably the scarcity of foreign exchange, the lack of adequate credit facilities at the regional level, and the insufficiency of other payments arrangements, which have all combined to hamper trade among African countries. The complexity of these problems calls for much prudence in handling the payments aspects of intra-African trade. Appropriate measures need to be carefully sorted out in the short, medium, and long terms. The success that can be made on this score hinges on the identification of the proper mechanism to be adopted in each term. This section aims to discuss the viability of a number of payments arrangements, including clearing systems, payments unions, reserve pooling schemes, limited convertibility arrangements, regional credit facilities, and regional export credit. Reserve Pooling

Schemes

The best of all payments mechanisms are the reserve pooling schemes, which are also known as full monetary unions and sometimes as singlecurrency areas. At the heart of such arrangements is a common central bank representing the monetary authority for a group of independent countries, with three major functions to perform: holding and managing the foreign exchange reserves of member countries, issuing a common currency, and managing the monetary aspects (as well as some aspects of fiscal policies) of member countries. 15 Ironically, this model exists only in West and Central Africa, where two monetary unions have been established that use a common currency, the CFA franc, but each with its own central bank. The two central banks conduct monetary policy, manage the monetary reserves, and coordinate fiscal policy in the union through statutory limits on budget deficits of member countries. The CFA franc is pegged to the French franc at a fixed rate, and France guarantees convertibility as well as unlimited overdraft facilities. In return, the external reserves of the union are held in an account at the French Treasury. The operation of this account requires the concurrence of the French government. 16 Provided that other obstacles not related to payments are simultaneously dealt with, the establishment of a reserve pooling arrangement would lead to the expansion of intragroup trade. The use of a common currency turns trade among member countries into "domestic" trade by resolving all

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payments-related problems, notably the scarcity of international reserves, the complexity of foreign exchange controls, and the multiplicity of foreign exchange regimes coupled with the inconvertibility and overvaluation of most currencies. In this regard, savings in convertible currencies would be higher if intragroup trade were a larger portion of their total trade. In addition, the scheme contributes, through coordinating monetary and fiscal policies, to faster growth with relative stability. For instance, it was reported that from 1980 to 1986 the real GDP of WAMU countries grew at an annual average rate of 2.6 percent, whereas that of non-WAMU countries in ECOWAS grew at a rate of only 0.56 percent. Further, the average inflation rate for the same period was 9.8 percent in WAMU countries, as opposed to over 20 percent in non-WAMU countries. In intra-ECOWAS trade, the share of WAMU members for the same period was over 56 percent, compared with 44 percent for the other nine member states. The WAMU share in intra-ECOWAS trade is reported to have largely been intra-WAMU trade. 17 In two recent studies, J. Boughton confirms the continuation of the positive economic performance of the Franc Zone. 1 8 He reports that throughout the 1980s, all the CFA member states had recorded inflation rates very close to or below France's inflation rate, in sharp contrast with the highly inflationary experiences of many African countries. The weighted average of consumer prices in the zone from 1980 to 1989 was 4.2 percent, compared with 6.5 percent for France. More important, the price stability was achieved at no cost in long-term growth. The mean annual growth in real output was around 2.5 percent, compared with 2 percent for France and less than 2 percent in neighboring countries. Unfortunately, the formation of these two monetary unions in the African Franc Zone seems to be an unrepeatable exception, in the sense that the unions cannot be expanded, at least in the short and medium terms, to include other members or become generalized in other African subregions. They have been based, inter alia, on the special relationship between France and its former colonies, which is not the same with other African countries. France or any other developed country may not be ready to support expanded or new unions that include other countries, nor may African countries wish to cooperate with a developed country in this fashion. Even if another formula replacing external supervision is sought, the formation or expansion of a monetary union—a supranational authority—will still be a difficult project. Member countries may not accept giving up their autonomy in the monetary and fiscal fields. The whole issue hinges, therefore, on (among other things) the decisive political will of member countries, which unfortunately may not be attained except in the long run (or even the very long run). The difficulties ECOWAS has encountered in establishing a monetary union are a case in point.

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Limited Convertibility The second-best payments mechanism is limited convertibility of the currencies of member countries because it is a step toward the establishment of a full monetary union. If adopted, it would be a great support to the existing clearing arrangements and the proposed payments unions. The arrangement has many variants. One less rigorous variant involves the establishment of a convertibility arrangement among participating countries to permit the exchange and unrestricted use of national currencies in regional transactions. Member countries would maintain their separate currencies and exchange arrangements, but the tradability of the currencies would be guaranteed in regional transactions. Aside from the benefits that would accrue from this form of limited convertibility, there are some costs that result from the loss of freedom in the use of an exchange rate, which would have to be set to reflect market equilibrium conditions. The approach would also involve some regional development problems, such as a loss of wealth in the countries that previously had overvalued exchange rates; this would compel the countries with overvalued exchange rates and the least developed countries to pursue austere economic policies, with the attendant difficulties for their long-run growth. 1 9 A more rigorous variant requires, in addition to the tradability of currencies, an agreement to adhere to the same exchange rate regime and to set fixed exchange rates between currencies of member countries. This agreement would reinforce the benefits expected under the first arrangement by reducing exchange risks, but the cost would involve further diminution of the autonomy of individual countries in the conduct of economic policy; it would also accentuate the regional development problems. In addition, there would arise a problem concerning which exchange rate regime to choose because it is unlikely that the same type of exchange regime would be equally suitable to all member countries. 2 0 Given these practical difficulties, the adoption of any form of limited convertibility depends on the political resolve of the leaders of member countries (as is the case with a full monetary union). Such resolve may not be attained except, perhaps, in the long run. Aware of these difficulties, the IMF advised ECOWAS countries against this type of monetary arrangement on the grounds that the preconditions for bringing it about were not yet present in the subregion. 2 1

Regional Credit Facilities A regional credit arrangement is mainly designed to provide shortmedium-term loans to resolve global balance-of-payments problems member countries. Forms of this facility vary in several respects such structure, terms and conditions, type of credit, and sources of financing.

or of as At

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present there are five such arrangements covering forty-seven developing countries, each with different details: 2 2 the Santo Domingo Agreement (SDA), 2 3 the Central American Stabilization Fund (CASF), 2 4 the Andean Reserve Fund (ARF), 2 5 the Arab Monetary Fund (AMF), 2 6 and the ASEAN Swap Arrangement (ASA). 2 7 The SDA provides, inter alia, a credit facility for financing global balance-of-payments deficits. The conditions include the use of the IMF first credit tranche and the adoption of macroeconomic policy measures to resolve the payments disequilibrium. The repayment period is two years and can be renewed for another year. The interest rate is based on the rates of international money markets. The A M F was established as a reserve fund. The authorized capital of the A M F is on the order of 600 million Arab accounting dinars, of which over half was paid in. The fund extends to its members five types of loans with different maturities to correct disequilibria in each member's balance of payments. Under the fund's articles of agreement, a member can borrow amounts up to four times its paid-in quota in convertible currency. 2 8 The size of the automatic loan is fixed at 75 percent of the m e m b e r ' s quota. The limits of the other loans are as follows: ordinary loans, 125 percent; extended loans, 175 percent; inter-Arab trade facility loans, 50 percent; and compensatory loans, 50 percent. The ARF was also established as a reserve fund. The subscribed capital of the A R F amounted to $500 million at the end of 1987, supplemented by interests received from fixed-term deposits with central banks of member countries, commercial banks, and the Eurodollar market. The loans are given for four years including a year's grace period. The interest rate charged on these loans equals three-month LIBOR plus 0.5 percent. The ASA arrangement is a much simpler, standby arrangement to help member countries with temporary international liquidity problems. A total amount of $200 million has been subscribed by the five member countries on an equal basis. Loans are made for a period of three months, renewable only once. The maximum amount that can be borrowed is double the amount of a member's quota. Credit facilities are, by nature, an ephemeral mechanism that should be resorted to only in exceptional circumstances, especially when the cash cycle is temporarily interrupted or proves too weak to generate adequate foreign exchange reserves. It therefore performs efficiently when balanceof-payments deficits are cyclical, but hardly operates in the case of perpetual structural deficits. In the first case, there are always surplus countries supporting the deficit ones, who in turn will eventually be able to repay loans from surpluses accumulated throughout the peak phase. Conversely, in the second case the deficit country would have no sufficient international reserves to cover the balance-of-payments deficit, let alone the

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repayment of old debts. The situation would even be much worse, as in the case of African countries, if all trading nations are concurrently experiencing persistent balance-of-payments deficits. The lack of self-financing property was precisely behind the difficulties encountered by the existing regional credit arrangements; it eventually obliged most of them to revise their financing and lending policies in an attempt to survive. The AMF, for example, has reduced the quota size first established under its articles of agreement and now depends on internally generated funds for lending purposes. Furthermore, the automaticity of loans is now limited to the first tranche, which is equivalent to the quota and falls short of the actual deficit. The AMF has also tightened the macroeconomic conditionalities of different types of loans. Drawings above the first two tranches, as well as the extension of the loan term, have furthermore become subject to conditionalities that are similar in most cases to those used by the IMF. In its attempt to survive, the ARF in January 1988 adopted a decision permitting other countries in the region to become members, thereby increasing its lending capacity. Finally, a proposal was made to strengthen the regional credit arrangements by linking them to a reserve pool whereby member countries support each other, rather than depositing surplus funds in commercial banks. This proposal presumes, however, that all countries are not concurrently in deficit, which is not the case in the African context. 2 9 Notwithstanding these reservations, an attempt is currently being made to establish an African Monetary Fund ( A f M F ) to deal with shortterm balance-of-payments issues of member countries and to assist them in the economic reformation programs needed to deal with the medium- and long-term effects of chronic and deep-rooted balance-of-payments deficits. At the same time, it would finance balance-of-payments deficits arising from intra-African trade in goods and services as a means of promoting collective self-reliance. In addition to a capital estimated at $3 billion, participation of non-African countries in the fund was considered, together with borrowing both within and outside Africa, securing credits on concessional terms, soliciting grants and donations, and accepting deposits of reserves from central banks of member states. It was agreed that the fund might initially have four short-term financing facilities: a balance-ofpayments financing facility, standby financing arrangements, a special financing arrangement for intra-African trade, and special food-financing facilities. It might also have intermediate- and long-term financing facilities to help cope with the economic reformation made necessary by balance-ofpayments deficits. The basic conditions applied to all credits and other financing facilities of the A f M F would be that (1) the country must be in real need of balance-of-payments support, (2) it must have been a member of the fund for at least six months before applying for such support,

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and (3) it must be up-to-date with its subscriptions to the fund. Other conditions specific to each form of financing would apply depending on the type of facility involved. 3 0 However, no action has been taken so far to bring the idea into practice. Three issues have accounted for the standstill: the size of the capital stock, the mode of payment of subscriptions, and the nonregional membership. The three problems all arise from the absence of self-financing property for credit facilities in the African context. In an attempt to help the project move forward, a relatively modest alternative scenario was introduced, based on a gradual approach to the establishment of the fund. According to the revised feasibility study, four phases were envisaged. 31 In the first phase, the activities of the fund would be confined to research and training facilities and to providing short-term credit facilities to subregional clearinghouses to finance outstanding balance-of-payments deficits. In the second phase, the fund would extend medium-term credit facilities to the clearinghouses and standby arrangements. The fund is expected, in the third stage, to be able to handle the controversial financing of global balance-of-payments deficits and to provide a financing facility for the food imports of some member countries. The fourth phase is that of maturity, in which the fund would supposedly be able to tackle such issues hitherto proving intractable (e.g., making national currencies of member countries available for financing transactions, thereby ensuring their limited convertibility). Albeit modest and more realistic, the amended scenario has remained, and is expected to remain, in the project stage because its preconditions are not likely to come forth in the foreseeable future given the critical financial position of the continent and the ephemeral nature of credit mechanisms. The first feasibility study on the fund seems to be in favor of this conclusion. It states that "it is not likely that the African Monetary Fund will raise significant funds from other than African members' subscriptions during the first few years of its operations. . . . Unless the African Monetary Fund makes an appreciable impact in its early years, it will not command the confidence of its members or earn credibility as a financial institution, either inside or outside Africa." 3 2 Regional Export

Credit

This is a special variant of a credit mechanism having to do exclusively with financing exports. This kind of facility is being practiced in all countries by national banks, especially commercial and merchant banks, and sometimes by specialized institutions. As a matter of fact, financing foreign trade has in general been the major traditional business of commercial and merchant banks. Recently the idea has been considered at the regional

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level as a means of promoting intraregional trade. Latin American countries took the initiative and in 1977 established the only existing regional arrangement of this kind, the Banco Latinamericano de Exportaciones (BLADEX), whose objective has been to finance Latin American exports without conditioning such financing to economic policy reforms of member countries. Both the Islamic Development Bank and the A D B are also considering at present the idea of providing such export credit to member countries. BLADEX designed its financing policy so as to mobilize resources for its operations from three major sources: subscriptions by the member financial institutions, investment in various financial markets, and borrowing from Eurodollar market. The bank permitted accession of nonregional financial institutions to its membership, which had increased by the end of 1987 to 260 banks from thirty-four countries: twenty-four from North and South America, six from Europe, and four from Asia. However, the main sources of finance are Latin American Central Banks, which account for 57 percent of the total deposits, with most of the remainder provided by international banks. By the end of 1986, borrowings from Eurodollar markets amounted to $198 million. 3 3 Accumulated loans accorded by the bank by the end of 1986 totaled $7.344 billion, of which over 60 percent was granted to finance nontraditional exports. However, only about one-fourth of such credit was used to finance intragroup trade in such products, with the bulk of lending taking the form of direct financing of export bills, mostly of a short-term nature (84 percent in 1986). As a result, the bank has become, it is argued, an alternative to commercial banks, which are reported to have been performing satisfactorily. 3 4 The existing export credit facilities have been designed to finance or refinance mostly short-term export bills, but they do not provide insurance or guarantees against nonpayment of the claims of exporters. The InterArab Investment Guarantee Corporation is the only regional scheme established to handle such problems concerning insurance and guarantees. It provides guarantees on export credit related to transactions between its members. Like other regional credit facilities, the scheme seems less feasible in the African context, given the problems of the acute shortage of foreign exchange and resource mobilization in the continent. However, similar credit facilities are recommended to be established within a payments union, with the A D B playing the major role in financing it. The experience of BLADEX lends support to this argument in that the organization eventually turned out to be a pure commercial bank. All the same, African countries have recently proceeded with the creation of an African export and import bank. The treaty was signed in Abid-

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jan, Cote d'lvoire, in October 1993, and the bank, located in Cairo, Egypt, was expected to commence operations in February 1994. For the reasons mentioned above, the bank is unlikely to be viable, particularly in the present circumstances. It will most likely add to, rather than solve, problems in the continent. As indicated earlier, it is urgently necessary to rationalize and make maximum use of the existing arrangements, not to add new and uncertain ones, given the continent's limited resources. That is precisely why a better option would be to open a trade window at the ADB to perform the same functions. This would be done in collaboration with the proposed subregional communities, at almost no cost, given the bank's experience and creditworthiness. Clearing

Systems

A clearing system is a simple and easy-to-handle mechanism for financing intragroup trade. It is a multilateral payments arrangement among central banks of participating countries for the purpose of clearing all or some intragroup transactions. The main objective of such an arrangement involves facilitating intragroup payments, mainly through encouraging the use of national currencies in multilateral transactions, thereby economizing on the use of the scarce foreign exchange reserves available to member countries. The central feature of clearing mechanisms is the use of a common unit of account for clearing transactions, with exchange guarantees to maintain the value of creditors' claims. Another fundamental element is a built-in, very short term credit facility of one to three months, a settlement period at the end of which the debtor bank must pay its balance in an agreed-upon convertible currency. There are also provisions relating to the setting of debit and credit lines, with an interest penalty usually charged on the amounts in excess of debit lines. Finally, all current commercial and noncommercial transactions, often including intragovernmental grants and loans, that relate to products originating from within member countries, are usually eligible for clearing through this arrangement. 3 5 Because of its relative simplicity and employability, the clearing mechanism has been widely adopted by quite a number of developing countries. At present there are nine clearing arrangements for seventy-five developing countries. 3 6 One of them, the Caribbean Multilateral Clearing Facility (CMCF), has recently suspended operations as a result of default by some member countries. In contrast, Karunasekera reports the clearing system adopted by the Latin American Integration Association (LAIA) to have performed quite well. The value of transactions settled in convertible currency represented only 16 percent of total transactions in 1986, whereas the total value of transactions cleared through the scheme amounted to

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$6.2 billion, or 85 percent of intragroup trade in that year, a total value of $77.6 billion for the period since 1961. Of the nine clearing arrangements, the performance of the three in Africa is, unfortunately, reported to have been unsatisfactory. Several factors have been identified as responsible for the underutilization of these clearing houses. Chief among them—in fact the fundamental problem threatening the very existence of the clearinghouses—are the structural imbalances in intragroup trade, which are due, inter alia, to the polarization of growth in the more advanced member countries. The elimination of such structural imbalances can hopefully be attained in the long run within a comprehensive program of regional development. In the short term, the key to increasing the efficiency of the clearing mechanism is to reform the existing clearinghouses in the three African subregions so as to resolve as much as possible the problem of structural imbalances in intragroup trade. However, the highly demanding challenge is in finding what kind of reform can be made. One possibility, it is argued, is to create built-in, short- and/or medium-term credit facilities. For the existing interim, credit is restricted only to the settlement period and does not cover outstanding debit balances. In most arrangements, debtors have almost exhausted their interim credit, and unless surplus countries are willing to extend the credit period they may default, as in the case of the Central American Clearing House. The LAIA adopted this approach and established within its clearing scheme a credit mechanism to settle outstanding debit balances of member countries. The term of repayment is limited to four months, which can be extended up to one year. By the end of 1986, member countries had made sixty-two drawings from the facility, which partly explains the more effective use of the LAIA clearing scheme. 3 7 Attractive as it may be, the idea seems less operational, if at all, in the African context, given the temporary nature of credit mechanisms and the critical financial position of the continent. To live up to the challenge, ECOWAS sought technical assistance from the United Nations Conference on Trade and Development (UNCTAD) to explore possible alternatives. A study was commissioned to Hans Genberg of the Graduate Institute of International Studies, Geneva, who recommended the following: 1. Establishing an institution with the objective of multilateralizing the settlement of net credits and debts resulting from transactions cleared through the WACH; 2. Endowing this institution with financial resources enabling it to extend short-term credit to member countries in addition to centralizing settlements; and

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3. Liquidating existing settlement arrears before the new institution starts operations. For the purpose of having member countries provide short-term credit to each other, Genberg rejected the option of extending the settlement period from the current thirty days to sixty or ninety days. He further discredited the idea involving a swap agreement between WACH members such as the ones existing within ASEAN. He alternatively favored the establishment of a common reserve fund among member countries. According to him, "Each WACH member will establish an account with the proposed West African Common Fund (WACF) by depositing a certain amount of convertible currencies. At the end of each settlement period the WACF simply debits the account of the debtor country(ies) and credits the account of the creditor country(ies) with the relevant amount. The creditor country will now have a claim that is larger than its initial deposit. This excess is at the disposal of this country without condition. The debtor country, on the other hand, will find that its claim on the WACF is less than its initial deposit. It must therefore transfer the corresponding amount to the fund or request a short-term credit. If it fulfills the eligibility requirements for this credit, the conditions for repayment of such credits will apply." 38 Indeed, the idea of multilateralizing settlements would largely reduce the overall debit balances. Nevertheless, it seems more suitable for relatively developed countries, which can settle their debit balances in convertible currencies. In the African context, the proposed fund, as such, is not likely to have significant practical effects so long as the remote cause of the problem remains the same, i.e., the persistent shortage of foreign exchange. The only innovation in this proposal is the transfer of claims on the debtor country from the creditor country to the fund, but the debtor country will have to pay off its debt anyway when it falls due. The question therefore remains: how can the debtor country pay off its debts while it is desperately short of foreign exchange? More to the point, the condition stating that the debtor country should fulfill the eligibility requirements in order to qualify for short-term credit will totally frustrate the fund, and hence the clearing mechanism, simply because most (if not all) debtor countries are not in a position to fulfill the eligibility conditions, given their persistent inability to pay. Genberg's proposed fund can, however, work in the short run if supported by other complementary measures. Relevant in this context is an expansion of the list of goods and services settled through the clearinghouses so as to include oil and other key exportables. As referred to earlier, the need for earning as much foreign exchange as possible has induced many African countries to exclude cash products, particularly oil, from the list of goods and services passing through the clearinghouse and

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to stipulate that they should be paid for in foreign exchange. If the payment regarding oil and other cash items had passed through the clearinghouse, most settlement arrears would have disappeared. The final position of member countries would even have been reversed, with concomitant expansive effects on intragroup trade. As Genberg notes, if payments for oil trade had been channeled through the clearing mechanism, then the WAMU, which is currently the most important creditor in the WACH, would have been a debtor. Likewise, Nigeria, which has been an important debtor in the grouping, would have been a creditor within the clearinghouse during most of the 1980s if its oil exports had been cleared through the WACH mechanism. 39 The possibility of using precious metals in the settlement of outstanding balances can also be considered. It is important, finally, to harmonize relevant practices and legislations to improve the performance of the existing clearinghouses in the short run. In this context, particular attention needs to be paid to such areas as the rules and regulations governing payments and trade, the procedures and documentary cycle relating to transfer operations, exchange control and exchange rate regimes, bilateral clearing arrangements, relevant monetary policies, and other incentives to encourage the use of the clearing mechanism. 40 Payments Unions Technically speaking, a payments union is a modified and more developed version of a clearing system that provides, in addition to a clearing mechanism proper, a medium-term credit facility to help settle outstanding debit balances of participating countries. The credit might be either extended on a mutual basis among member countries or provided partly by outside contributors. The European payments union was such a mixed arrangement, with the United States contributing $100 million but not otherwise participating in the scheme. 41 Other things being equal, the provision of credit would render the clearing mechanism more efficient in enhancing intragroup trade in Africa. However, as previously indicated, a payments union based on a mutual credit assumes that trade balance reversals take place periodically, which unfortunately is not the case in the African context. Because of the polarization of growth, less developed countries are persistent debtors, and the relatively advanced countries are invariably creditors. This awkward situation creates two major problems for a payments union. First, creditor countries would have no incentive to participate in the arrangement, particularly when they experience global balance-of-payments deficit calling for the use of their credit balances. Second, unless they somehow bring about trade balance reversals, debtor countries would have no chance to

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settle their outstanding balances, particularly when they in turn suffer from persistent global balance-of-payments deficits, which is invariably the case in almost all African countries. To tackle this fundamental problem, and consequently to get the payments unions concept working efficiently, this book presents two options for consideration, provided that the previously recommended measures for increasing the efficiency of the clearinghouses in the short term are followed. (These measures are, to recall, expanding the list of goods and services settled through the clearing mechanism so as to include oil and other key exportables, considering the idea of using precious metals in the settlement of debit balances, and improving the working conditions of the clearinghouses as indicated earlier.) The first option involves the use of national currencies by participating countries in the settlement of outstanding balances in lieu of, or side by side with, international reserves. This option raises the idea of limited convertibility, which in practical terms is difficult in the short run. However, member countries are expected to have tackled the relevant obstacles in the medium and long terms. The other option involves the provision of short- and medium-term credit facilities, to be financed by outsiders. The merit of this idea is, among other things, that both creditor and debtor countries would have an incentive to participate actively in the union. Creditor countries would be paid on a timely basis, and debtor countries would be given some relief, encouraging them to make maximum use of the facilities. The trouble with these kinds of credit facilities, however, concerns the sources of the proposed external support. International organizations can of course significantly contribute to the scheme, but the principal role in this context should be given to the ADB, the major regional financial institution in the continent. The ADB can in one way or another accommodate such facilities in its diverse activities. More elaboration on this point will be made later on. Another possibility would be to create an African Monetary Fund, to be essentially charged with, inter alia, financing such credit facilities. However, in view of the difficulties encountering the creation of an African Monetary Fund and the fact that it would take quite some time to stand on its own once created, it seems more appropriate to get the ADB involved in the scheme, given its already solid financial position, creditworthiness, and extensive experience in lending activities in the continent. Whichever option is favored, the establishment of the proposed payments unions should preferably be approached in two stages. The first stage involves development of the existing clearinghouses into subregional payments unions that would be merged in due course, during the second stage, into a single regional arrangement. This "realistic" two-stage approach is in fact in line with the Lagos Plan of Action, which required all

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African subregions to establish clearing arrangements before starting negotiations to link them to form an African payments union. However, the ACMS has made another proposal contemplating a different approach: a regional framework that would gradually integrate the existing subregional clearinghouses into a payments union. 42 In order to finance the credit facility, the proposal suggests, inter alia, empowering the union to borrow foreign exchange from member countries, international markets, and other institutions; it also proposes accepting foreign exchange deposits from central and commercial banks of member countries, foreign banks, and other official institutions. This proposal is not likely to work smoothly in Africa for two reasons. On one hand, past experience with payments unions in the continent stands against the idea of beginning primarily with a regional arrangement and suggests, instead, a subregional approach. Two attempts were made in the euphoria of independence to set up a regional payments union, but neither succeeded. The signatories of the Casablanca Charter (Algeria, Egypt, Ghana, Guinea, Mali, and Morocco) signed an agreement in Cairo, Egypt, in April 1962 establishing a regional payments union, but the arrangement never entered into force, mostly for political reasons. The ECA tried to do the same thing at its fifth session, in 1963, commissioning Professor Triffin to undertake a study on the subject. He proposed three types of agreements: a clearing arrangement without the opening of credits, an agreement for interim multilateral financing of intra-African settlements, and mutual assistance pacts that were more ambitious payments and credit arrangements. This proposed union has also remained in the project stage because preconditions for its formation were not forthcoming. 43 On the other hand, the proposed sources for financing the credit scheme are not likely to provide the needed financial resources. A nascent payments union definitely cannot be expected to borrow foreign exchange successfully from international markets. In addition, African countries as well as their central and commercial banks are not in most cases in a position to lend foreign exchange to or deposit it with the proposed payments unions, given the scarcity of foreign exchange in the continent. In short, the two-stage approach with the financing alternatives proposed in this text still seems more viable in the African context than the one proposed by the African Centre for Monetary Studies. Conclusions In the light of the above critical review of six financing mechanisms, the best mechanism is the reserve pooling scheme, which is already applied in the African Franc Zone but cannot be expanded or employed in other African subregions for political and other considerations. The same obstacles also stand in the way of adopting limited convertibility arrangements,

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the second-best approach in this regard. Regional credit facilities are tempting, but in turn face two intractable problems: the persistent balanceof-payments deficits in almost all African countries, and the insufficiency of available resources in relation to total requirements. The two problems deprive the mechanism of its self-financing property and thus make it less operational in the African context. The same applies to regional export credit, which can be handled very efficiently, in relative terms, by national commercial banks. Clearing systems are in fact the easiest of all mechanisms, but unfortunately they are almost paralyzed by structural imbalances in intragroup trade. It is hoped that these imbalances can be eliminated in the long run within a comprehensive program of regional development. In the short run, though, the efficiency of the mechanism can be increased by reforming the existing clearinghouses. In this context it is recommended to support Genberg's proposed WACF by implementing three complementary measures: expanding the list of goods and services passing through the clearinghouse so as to include oil and other key exportables, considering the idea of using precious metals in the settlement of outstanding debts, and harmonizing relevant practices and legislations. Payments unions provide both a simple clearing mechanism and shortand medium-term credit facilities; therefore they are faced with the same obstacles mentioned above concerning structural imbalances of intragroup trade (persistent balance-of-payments deficits and insufficient resources in relation to total requirements). Two options have been proposed to resolve the last two problems: either get the ADB to finance the proposed credit facilities or entrust the African Monetary Fund, when established, with this job. Given practical considerations, the first option is preferred to the second one. Furthermore, this book suggests a two-stage approach to forming the union. In the first stage, the existing clearinghouses are to be promoted into subregional payments unions, to be merged in due course, during the second stage, into a regional arrangement. On the basis of this analysis, it appears that African countries have no other choice in the short run but to strengthen the existing clearinghouses in the way proposed above. In the medium term, the development of these clearinghouses into subregional payments unions, as explained earlier, is the most appropriate option. A regional monetary union should remain the ultimate aim for the distant future.

The Role of Donors The African Development

Bank

The African Development Bank has a vital role to' play in boosting the integration process in Africa, being by far the biggest African financing

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institution. Based in Abidjan, Côte d'Ivoire, the Bank was established in 1963 by thirty independent African countries. It commenced operations in 1966 with a subscribed capital of $250 million, which successively increased to reach $23 billion in 1988. Membership of the Bank now totals seventy-seven countries, of which fifty-two are regional. Modeled on the International Development Agency (IDA), a World Bank affiliate, the African Development Fund (ADF) was created in 1972 as part of the A D B to take care of contributions by donors to development projects in member countries. The A D B was also entrusted with the management of the Nigerian Trust Fund (NTF), founded in 1976 to channel Nigeria's financial assistance to African countries. The twenty-five years from 1967 to 1992 witnessed substantial expansion in the activities of the Bank Group. As of the end of 1992, the Bank Group had committed the sum of $25.3 billion for over 1,760 projects to about fifty member regional countries. The expansion of the lending program was made possible by the steady increase in Bank Group resources. As a result of the Fourth General Capital Increase, the capital of the A D B reached about $23 billion in 1988. The concessional resources of the ADF also increased to $6.6 billion in 1988 following the Fifth Replenishment of resources. Thanks to these resources, the lending program of the Bank Group for the five-year period ending in 1991 was projected at $12.5 billion, a target that exceeds loan commitments made during the preceding twenty years. 4 4 The establishment and performance of the Bank Group provide further evidence of Africa's blurred vision concerning regional cooperation. While African countries were rushing to establish a host of cooperation árrangements in the early 1960s, they adopted, surprisingly, inward-looking development strategies stressing national development rather than regional integration. This inconsistency has been well reflected in the Bank's terms of reference. Although committed to financing regional projects that strengthen intra-African cooperation, the statutes of the Bank and its affiliates put legal constraints on lending directly to subregional organizations compared with loans guaranteed by governments. When lending for multinational projects, the statutes further require member countries to use their individual country allocations, although member countries have generally been reluctant to do this. In conformity with these provisions, the criteria formulated for resource allocation emphasize individual country allocations with no reference to supporting subregional organizations. These legal constraints aside, the Bank Group has not shown enough enthusiasm for financing multinational projects, because they are relatively complex (politically, juridically, administratively, and technically). Perhaps for these reasons, the Bank has not promoted effective mechanisms for identifying multinational projects.

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On the other hand, African governments themselves are claimed not to have been fully committed to multinational projects. An important reason for this is probably the political and economic policy divergence between different countries, which makes it difficult for multinational projects, requiring some degree of collaboration and coordination, to be easily promoted. Another reason may be that cost-benefit sharing arrangements associated with multinational projects are not in many cases advantageous to some participating countries, which tends to dampen enthusiasm for exploring other opportunities for these projects. Finally, economic difficulties, including debt servicing, have certainly had their adverse effects. They oblige member countries to concentrate more on national projects at the expense of multinational projects. It is not surprising, therefore, that the role of the Bank Group in regional integration has so far been very small. As of December 1992, total cumulative Bank Group lending to regional member countries amounted to $25.3 billion, of which $83.8 million, or 0.4 percent, represented commitments to multilateral projects, which is extremely negligible indeed. The sectorwise analysis of these loans reveals that agriculture accounted for 25.6 percent of total commitments, public utilities 23.0 percent, transport 16.3 percent, industry 14.7 percent, social services 10.3 percent, and multisector projects 11.2 percent. Geographically, the West African subregion received 28.2 percent of total loans, followed by North Africa at 26.9 percent, Central Africa at 16.7 percent, Southern Africa at 14.8 percent, and East Africa at 13 percent. 4 5 Past experience aside, the time has come for the Bank Group to play a more forceful role in the context of regional cooperation. As a matter of fact, the framework for regional cooperation in Africa proposed in this volume provides much room for the Bank Group to participate actively in this process. In the first place, there is the trade window proposed to be created within the ADB to provide short- and medium-term credit facilities to the subregional payments unions that are to be established in due course. The possibility of extending these credit facilities to the existing subregional clearinghouses can be explored pending the establishment of the proposed payments unions. As previously recommended, it is generally preferable to create this window than to entrust the provision of such credit facilities to a nascent monetary fund or a separate export and import bank. Though ideal, this recommendation has lost its vigor because the African Export and Import Bank has already been established. The responsibility for extending credit facilities to the existing clearinghouses and, in due course, to the proposed payments unions is therefore recommended to be taken over by the new bank. Another important area of action is to finance structural reform policies, which are to be implemented (as recommended earlier) at the subregional

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level, including in particular privatization programs. A s a matter of fact, efforts are being made to earmark resources for policy-based loans. It is reported that the Bank Group committed about $1.3 billion in 1987 and 1988 to sectoral and structural adjustment loans. 46 However, what needs to be stressed in this context is to get those reform programs coordinated by the economic communities at the subregional level. Finally, it is important to pay increasing attention to multinational projects. At least 25 percent of total loans, not the current 0.4 percent, need to be allocated to these projects, to be systematically increased in proportion to the anticipated progress in this area. In order to put these proposals into effect, the Bank is urged to revise relevant provisions of the statutes and to reformulate its lending programs accordingly so as to accord higher priority to multinational projects. In this context, it has been suggested (1) to provide incentives to encourage borrowing for multinational projects, such as preferential terms for lower lending rates and longer grace and amortization periods; (2) to earmark technical assistance resources that support preinvestment studies for multinational projects; and (3) to create a special f u n d that earmarks funds exclusively for financing these projects, which would give further incentives to countries that are reluctant to commit their individual country allocations to projects not designed to benefit from them directly. 4 7 Equally essential is to create within the Bank a focal point to be exclusively charged with the activities having to do with the promotion of multilateral projects. This focal point would establish, inter alia, strong coordination and collaboration among organizational units responsible for identifying, preparing, and implementing projects and programs. A further important area of cooperation that deserves special attention is to get the ADB to consult with subregional communities on the allocation of the resources of the A D F and NTF. These resources are destined for priority development projects in needy member countries, which is the major area of activity of the subregional communities. It would therefore be extremely useful to have these resources allocated jointly by the Bank and the subregional communities. It is noteworthy that the Bank has made positive efforts to promote both private-sector and intra-African trade. A private-sector promotion division was established in March 1987, and policies and strategies for increased intervention of the private sector have been under consideration. A roundtable for business professionals was also formed from a cross section of African entrepreneurs. A proposal to begin trade-financing operations within the Bank is currently being studied. The Bank has also contributed actively to the establishment of the new African export and import bank, designed to mobilize resources to promote regional trade.

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Though highly commendable indeed, these efforts would be more fruitful if made in coordination with the subregional communities. The trade-financing proposal is particularly commendable, provided that it will be made through the proposed payments union or the existing subregional clearinghouses. As previously argued, this would ensure maximum benefits from the scheme as well as, inter alia, promoting efficient payments mechanisms in the continent. However, as part of this volume's proposed approach, the main responsibility for regional cooperation remains with the subregional communities, acting on behalf of member countries according to the scenario conceived above. The community will take charge of harmonizing national development plans along the lines specified earlier. Thus, priority areas would be identified, streamlined, and communicated to the member countries for necessary action and to the Bank Group for relevant support. In other words, the subregional community will act, in a sense, as a mediator between member countries on one hand and donors (including the ADB) on the other. It will coordinate and harmonize efforts made by the two sides, member countries and donors, to promote subregional integration. Other Donors The role of donors is highly controversial. Skeptics, mostly radical, are worried about the adverse effects external aid usually has on national economies. Acknowledging the various cost elements of external aid, liberals, by contrast, generally favor such aid on the grounds that its overall impact on economic development is more likely to be positive. The opponents of external aid argue that it reinforces dependence on donors, who consequently enjoy a firm control on the selection process of development projects. There is also the likely threat that donors might suspend their aid during the implementation of the project, which would do much harm to economic development. Finally, opponents express their concern about the repatriation of profits, which would eventually result in net outflows from developing countries. The counterargument contends that given all these probable risks, external aid is nonetheless indispensable, particularly in Africa, because African economies are too poor to generate financing requirements from within. Fortunately, the experience of SADCC provides evidence that, if dealt with carefully, aid may be globally beneficial. As previously mentioned, SADCC prepares a list of projects to be financed by donors both sectorwise and countrywise. For this purpose, it invites donors to annual fora for discussing proposed projects, as well as related reports and studies, in a friendly way and with reciprocal respect. Donors are not allowed to

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change the list of projects presented. In short, S A D C C makes maximum use of external aid through "cooperation" with, not dependence on, donors; i.e., S A D C C takes an active role and exhibits friendliness and a firm stance. In the light of SADCC's experience, one might recommend that similar arrangements be established under the auspices of the new subregional communities. Instead of dealing directly with individual member countries for financing specific projects, donors can deal with them through the subregional communities. On the basis of studies jointly undertaken by the communities and member countries, the community can assist in directing external aids to priority areas as previously defined. Aid modalities should consequently be modified so as to place more emphasis on program and sector aid. In practical terms, the matter seems easy, thanks to the recent tendency toward program and sector aid. In 1969 the Pearson Commission urged donors to take a broader view of the environment of project aid and also urged greater use of program aid. The World Bank, a project-financing institution, has been moving into program and sectoral lending. Recently, the Asian Development Bank broadened its concept of program lending into an essentially sector-based facility. 48 Sector aid is well known to constitute a clearly defined program of small but usually identifiable projects linked together with a common set of objectives. Sector aid may be aid to a particular sector, but it can also span a whole region within the continent or a number of sectors (such as in integrated rural development projects). According to T. Rose, sector aid proves generally effective in meeting some critical internal and external constraints in sub-Saharan African countries, and in overcoming the problems resulting from the lack of a systems approach, which has often hampered traditional projects. 49 It can also address and attempt to ameliorate absorptive capacity constraints at the same time it attempts to support the expansion of output. There is, in addition, the potential of offering some degree of identifiability and visibility to the donors' efforts and making it possible to employ the "target groups" and "end use" concepts. Compared with project aid, sector aid offers the possibility of assessing what policy modifications were actually implemented and making some judgment concerning the improved capabilities of specific institutions. Furthermore, it has the potential for rapid disbursement and can save on human resources and administrative expenses for the donors. Finally, this type of aid can improve interdonor and donorgroup-recipient-government coordination to avoid overlapping, duplication, or working at cross-purposes (a technical coordination pitfall); it can expand into consultative coordination relating to sectoral diagnosis, policy prescription, and mutually reinforcing aid interventions. Having economic communities handle the sector aid on a subregional basis would, in addition, minimize the drawbacks of the approach recom-

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mended in this book. In particular, it would take care of the following weaknesses: 5 0 1. It would forestall the lack of visibility and assessability of such aid compared with project aid. 2. It would alleviate the difficulty in comparing before-and-after situations, which are methodologically difficult in a dynamic situation in which policy adjustment is taking place. 3. It would avoid the occasions when it is beyond the financial capability of a single donor to achieve the "critical mass" of aidsupported activities, which may be seen as essential in order to make significant progress in a sector or a region. 4. A separate operational ministry in the recipient country rarely covers the entirety of the sector under consideration, and this can cause very serious difficulties in reaching a meeting of minds on the diagnosis of constraints and in the discussion of policy alternatives, and even greater difficulties in following up on the implementation of agreed-upon policy adjustments. 5. Policy dialogue cannot avoid addressing politically sensitive issues such as urban-rural income distribution or the proper role of government.

Political Will The whole scenario conceived above hinges on the firm political will of Africans, without which the integration project can hardly be set in motion. First and foremost, Africans should bear in mind that regardless of their unsuccessful experience with regional cooperation, they have no other choice but to continue cooperation at any cost; it is a matter of survival in the rapidly changing international politicoeconomic order. Recent political developments are full of gloomy prospects for Africa. The countries of the region will no longer be able to attract resources by playing superpowers against each other, given the disappearance of the bipolar world system. In addition, a considerable portion of official foreign aid will be directed to the former socialist countries at the expense, of course, of funds destined for Africa; this will have far-reaching implications for economic development in the continent. International organizations are likely to adopt tougher attitudes in their new lending policies as they direct part of their resources to the newcomers to the market-economy world. Even direct investment will find its way to the newly promising Eastern Europe. The emergence of regionalism on a larger scale in today's world further indicates that individual states outside economic and political blocs will more likely find themselves cast aside.

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It is important to understand that the integration process is a long and difficult one, requiring determined and concerted action by all African countries at all levels over an extended time period. The EEC, for example, has taken about thirty-five years to attain a European common market. The process may take even longer in the African context, given the peculiarities of the continent. This will definitely incur high costs in terms of financial, material, and human resources, as well as forestalling other opportunities. Unless Africans are well aware in advance of these unavoidable sacrifices and are willing nonetheless to proceed with cooperation, the very survival of the continent will likely be thrown in jeopardy. African governments, bearing the primary responsibility, should therefore demonstrate full commitment to subregional integration. Furthermore, their commitment needs to be safeguarded against destabilizing political changes that might—as experience has often shown—take place in the countries (e.g., changing regimes and political orientations); intergovernmental agreements need to remain binding in all circumstances. Governments are further required to translate their commitment into concrete measures. They should particularly honor their financial obligations on a timely basis so that the communities' organs can smoothly discharge their duties. It is also important to make available to the communities qualified professionals and chief executives who fully comprehend the intricacies of integration and have relevant expertise and proven leadership capabilities. Finally, it is necessary to get the concerned government bodies to implement the recommendations of the subregional communities in a timely manner and to seriously communicate with the communities as agreed upon. An essential ingredient of the integration process concerns its democratization. So far, the process has been a business of governments only, with other groups totally marginalized. The result has been an indifferent attitude on the part of African masses, which has contributed to the failure of cooperation efforts. Business professionals, for example, have a vital role to play in this regard. They are required to participate actively in the process by shifting, when possible, or extending their business to the markets of other member countries. The challenge is definitely demanding, given the well-known hardships faced in and by the continent. Nevertheless, nothing significant can actually be achieved without the involvement of business, particularly in the context of privatization, debt/equity swaps, and structural adjustment programs. Politicians, and intellectuals as well, can substantially contribute to the success of cooperation efforts. They are required to educate the African masses on the merits of integration and invite them to support, materially and morally, relevant efforts. S.K.B. Asante suggests some good ideas for consideration by West African states. He proposes, for example, teaching a course on regional integration in all schools and universities in member

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countries, in addition to the English, French, and even Portuguese languages, so that the African masses can easily communicate everywhere in the subregion. He further underscores the need for founding integration journals and promoting research and seminars on integration. 51

Notes I. Onitiri, H.M.A., "Rationalizing African Intergovernmental Organizations for Regional Cooperation." 2. Ibid. 3. Commenting on this point, R. H. Green writes that the RSA plans to end SACU by the end of 1992. 4. Asante, S.K.B., "Regional Economic Cooperation and Integration." 5. The classical model places emphasis on the integration of markets, the interventionist approach on the integration of production structures, the LPA on industrialization, and SADCC on the transport and communication sector. 6. J. E. Okelo also points out other important areas of action in this field; see his "Economic and Regional Integration in West Africa." 7. Asante, S.K.B., "Regional Economic Cooperation and Integration." 8. See: Nellis, J., "Public Enterprises in Sub-Saharan Africa"; Tanzi, V., "The Role of the Public Sector in the Market Economies of Developing Asia." 9. Shirley, M., "Promoting the Private Sector," in Finance and Development. 10. See Financial Times, 18 April 1988; Africa Newsfiles, 14 March 1988. I I . Hemming, R., and Mansour, A. M., "Is Privatization the Answer?" 12. Halim, A. A., "Privatization." 13. Halim, A. A., "Debt Securitization." 14. Ibid. 15. For further details, see Michalopoulos, C., "Payments Arrangements for Less Developed Countries." 16. For further elaboration on the two monetary unions, see Barthélémy, B.," "Union monétaire et intégration économique en Afrique Centrale"; Bhatia, R., "The West African Monetary Union." 17. Karunasekera, J., "Financial Cooperation among Developing Countries." 18. Boughton, J., "The CFA Franc Zone" and "The CFA Franc." 19. See ACMS, Currency Arrangements in the African Monetary Fund. 20. Ibid. 21. ECOWAS, "Report on Proposals for an ECOWAS Monetary Zone." 22. Karunasekera, J., "Financial Cooperation among Developing Countries." 23. Established in 1961 by member countries of the Latin American Integration Association (LAIA): Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Paraguay, Peru, Uruguay, and Venezuela. 24. Set up in 1969 by Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. 25. Instituted by Bolivia, Colombia, Ecuador, Peru, and Venezuela. 26. Established by the Arab League in 1977. 27. Established in 1977 by five Asian countries. 28. This was reduced in 1983 to 2.5 times the quota as a result of the increasing demand for loans.

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29. Karunasekera, J., "Financial Cooperation Among Developing Countries." 30. ECA, The Establishment of an African Monetary Fund. 31. ACMS, Towards an African Monetary Fund. 32. ECA, The Establishment of an African Monetary Fund. 33. Karunasekera, J., "Financial Cooperation Among Developing Countries." 34. Ibid. 35. For further details, see Michalopoulos, C., "Payments Arrangements for Less Developed Countries." 36. Karunasekera, J., "Financial Cooperation Among Developing Countries." 37. Ibid. 38. Genberg, H., "The Establishment of a Credit and Guarantee Mechanism in the West African Clearing House." 39. Ibid. 40. Halim, A. A., "Objectives of Harmonization of Banking Legislation and Practices in Africa." 41. See Michalopoulos, C., "Payments Arrangements for Less Developed Countries." 42. Gonzalez del Valle, Jorge, A Proposal to Foster Monetary Cooperation in Africa. 43. See Ouattara, A., "Study on African Systems of Payments." 44. ADB, Annual Report, 1992; Otieno, J. W., "The Experience of the African Development Bank in Financing Regional Integration Projects in Africa." 45. ADB, Annual Report, 1992. 46. Ndiaye, B., "Prospects for Economic Integration in Africa." 47. Otieno, J. W., "The Experience of the African Development Bank in Financing Regional Integration Projects in Africa." 48. Rose, T., "Aid Modalities." 49. Ibid. 50. Ibid. 51. Asante, S.K.B., "Regional Economic Cooperation and Integration."

ACRONYMS

AACB AAPC AAPSO ACMS ADB ADF AEF AfMF AM F AOF APPER ARF ASA ASEAN BAO BCEAO BDEGL BEAC BLADEX BOAD CACH CAR CARICOM CARIFTA CASF

Association of African Central Banks All-African Peoples Conference Afro-Asian Peoples Solidarity Organization African Centre for Monetary Studies African Development Bank African Development Fund Institution d'Emisson de l'Afrique Equatoriale Française (Bank of French West Africa and Cameroon) African Monetary Fund Arab Monetary Fund La Banque de l'Afrique de l'Ouest Française et de Togo (Bank of French West Africa and Togo) Africa's Priority Program for Economic Recovery 1986-1990 Andean Reserve Fund ASEAN Swap Arrangement Association of South-East Asian Nations Banque de l'Afrique de l'Ouest (Bank of West Africa) Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank of West African States) Banque de Développement des Etats des Grand Lacs (Development Bank of the Countries of the Grand Lakes) Banque des Etats de l'Afrique Centrale (Bank of Central African States) Banco Latinamericano de Exportaciones (Latin American Export Bank) Banque Ouest Africaine de Développement (West African Development Bank) Central African Clearing House Central African Republic Caribbean Community Council Caribbean Free Trade Association Central American Stability Fund 129

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ACRONYMS

CEAO CEDEAO CEEAC CEPGL CET CFA CIAS CMCF CODESRIA COI CPCM CSR EACB EACM EADB EAEC ECA ECCAS ECCM ECOWAS ECUCA EEC EPN ERSAP IBRD ICE ICMCWA IDA IDB IDEP

IDS

Communité Economique de l'Afrique de l'Ouest (Economic Community of West Africa) Communité Economique des Etats de l'Afrique de l'Ouest (ECOWAS) Communité Economique des Etats de l'Afrique Central (ECCAS) Communité Economique des Pays des Grand Lacs (Economic Community of the Countries of the Grand Lakes) common external tariff Communité Financière Africaine (African Financial Community) Conference of Independent African States Caribbean Multilateral Clearing Facility Council for the Development of Social Science Research in Africa Commission de l'Océan Indien (Indian Ocean Commission) Conseil Permanent Consultatif Maghrébin (Maghreb Permanent Consultative Committee) collective self-reliance East African Currency Board East African Common Market East African Development Bank East African Economic Community Economic Commission for Africa Economic Community of Central African States East Caribbean Common Market Economic Community of West African States Economic and Customs Union of Central Africa European Economic Community export participation note Economic Reform and Structural Adjustment Program International Bank of Reconstruction and Development Intergovernmental Commission of Experts Interim Council of Ministers of the Countries of West Africa International Development Agency Islamic Development Bank Institut Africain pour le Développement Economique et Planification (African Institute for Economic Development and Planning) Institute of Development Studies of the University of Sussex

ACRONYMS

IFS IGO IMF LAFTA LAIA LPA MAU MCCA MFN MRU MULPOC NTF OAU OECD OERS OMVS PAEC PAFMECA PTA RSA SACCAR SACU SADC SADCC SAP SATCC SDA TAZARA TCR UA UAM UDAO UDE UDEAC

131

International Financial Statistics Intergovernmental Organizations International Monetary Fund Latin American Free Trade Area Latin American Integration Association Lagos Plan of Action Maghreb Arab Union Mercado Común Centroamericano (Central American Common Market) most favored nation Mano River Union Multinational Programming and Operational Centre Nigerian Trust Fund Organization of African Unity Organization of Economic Cooperation and Development Organization des Etats des Rivières Sénégalèses (Organization of Senegal River States) Organization for the Development of the Senegal River Pan-African Economic Community Pan-African Freedom Movement of East and Central Africa Preferential Trade Area for Eastern and Southern African States Republic of South Africa Southern African Centre for Cooperation in Agricultural Research Southern African Customs Union Southern African Development Community Southern African Development and Coordination Conference structural adjustment program Southern African Transport and Communications Commission Santo Domingo Agreement Tanzania Zambia Railway taxe de coopération régionale (regional cooperation tax) unit of account Union Africaine et Malagache (African and Madagascan Union) Union Douanière de l'Afrique de l'Ouest (West African Customs Union) Union Douanière Equatoriale (Equatorial Customs Union) Union Douanière des Etats de l'Afrique Centrale (Customs Union of Central African States)

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ACRONYMS

UDEAO UEAC UNCTAD UNDP WACH WAFTA WAMU

Union Douanière et Economique de l'Afrique de l'Ouest (West African Customs and Economic Union) Union des Etats de l'Afrique Centrale (Union of Central African States) United Nations Conference on Trade and Development United Nations Development Programme West African Clearing House West African Free Trade Area West African Monetary Union

BIBLIOGRAPHY

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, "Objectives of Harmonization of Banking Legislation and Practices in Africa," paper presented at the Seminar on Harmonization of Banking Legislation and Practices in Africa, organized jointly by the African Centre for Monetary Studies and the Banque Centrale d'Algérie, in Algiers, Algeria, February 1989. , "Privatization: A New Ideological Development Worldwide," ACMS Financial News Analysis, August 1988. Hazlewood, A. (ed.), African Integration and Disintegration: Case Studies in Economic and Political Union, Oxford University Press, London, 1967. , "Economic Integration in East Africa," in A. Hazlewood (ed.), African Integration and Disintegration. Hemming, R., and A. M. Mansour, "Is Privatization the Answer?" Finance and Development, September 1988. Hoskyns, C., "Pan-Africanism and Integration," in A. Hazlewood (ed.), African Integration and Disintegration. IBRD, Background Papers, vol. 4, Long-Term Perspective Study of Sub-Saharan Africa: Proceedings of Workshop on Regional Integration and Cooperation, 1990. IMF, Direction of Trade, several issues. , "Taxation in Sub-Saharan Africa," paper no. 8, October 1981. Institut Islamique de Recherche et de Formation de la Banque Islamique de Développement, La Cooperation Economique entre les Pays du Maghreb, Jeddah, Saudi Arabia, 1984. Jalloh, A. A., "Foreign Private Investments and Regional Political Integration in UDEAC," in W. A. Ndongko (ed.), Economic Cooperation and Integration in Africa. Joshua, F. T., Experience of African Regional Economic Integration, UNCTAD Review, vol. 1, no. 2, 1989. Karunasekera, J., "Financial Cooperation among Developing Countries: An Assessment of Existing Arrangements," Commonwealth Secretariat, Regional Cooperation, report no. 15, April-September 1988. Martin, G., "The Preferential Trade Area for Eastern and Southern Africa: Achievements, Problems and Prospects," in Anyang' Nyong'o (ed.), Regional Integration in Africa. Matthies, V., "Collective Self-Reliance: Concept and Reality," 1NTERECONOMICS, March/April 1979. Michalopoulos, C., "Payments Arrangements for Less Developed Countries: The Role of Foreign Assistance, Princeton University, paper no. 102, November 1973. Muliasho, D. C., SADCC: A New Approach to Integration, IBRD, Background Papers, vol. 4. Nana-Sinkam, S. C., "The Impact of External Factors on BOP Problems of African Countries," in ACMS Symposium on BOP Problems of African Countries, August 1982, Malawi. Ndegwa, P., The Common Market and Development in East Africa, East African Publishing House, Nairobi, Kenya, 1968. Ndiaye, B., "Prospects for Economic Integration in Africa," in Anyang' Nyong'o (ed.), Regional Integration in Africa: Unfinished Agenda. Ndongko, W. A. (ed.), Economic Cooperation and Integration in Africa, CODESRIA, 1985. , "Regional Economic Cooperation in West Africa: The Case of CEAO," in W. A. Ndongko (ed.), Economic Cooperation and Integration in Africa.

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Nellis, J., "Public Enterprises in Sub-Saharan Africa," World Bank discussion paper, 1986. Nemedia, C., "The Experience of WACH: Organization, Creation, Functioning and Performance," in ACMS Seminar on Experience with Payments and Clearing Systems in African Countries, Freetown, Siena Leone, May 1987. Niakimwe, K., "The East African Community: Past Lessons and Future Possibilities," paper presented at the Fifth Symposium of the Special Commission on Africa, on Regional Economic Integration in Africa, organized jointly with the African Development Bank in Abidjan, Còte d'lvoire, 5 - 8 September 1989. Nyong'o, Anyang', (ed.), Regional Integration in Africa: Unfinished Agenda, Academy Science Publishers, Nairobi, Kenya, 1990. Nyunya, J. D., "The East African Community: Past Lessons and Future Possibilities," paper presented at the Fifth Symposium of the Special Commission on Africa on Regional Economic Integration in Africa, organized jointly with the African Development Bank in Abidjan, Cöte d'lvoire, 5-8 September 1989. O A U , Africa's Priority Program for Economic Recovery 1986-1990. , Lagos Plan of Action for Economic Development of Africa, 1980-2000. Okelo, J. E., "Economic and Regional Integration in West Africa," paper presented at the Fifth Symposium of the Special Commission on Africa on Regional Economic Cooperation in Africa, organized jointly with the African Development Bank in Abidjan, Còte d'lvoire, 5 - 8 September 1989. Onitiri, H.M.A., "Rationalizing African Intergovernmental Organizations for Regional Cooperation," in IBRD, Background Papers, vol. 4,1990. Onoh, J. K., Money and Banking in Africa, Longman Group Ltd., 1982. Oteiza, E., and Sercovich, F., "Collective Self-Reliance: Selected Issues," International Social Science Journal, vol. xxviii, no. 4, 1976, referred to in Matthies, V., "Collective self-Reliance." Otieno, J. W., "The Experience of the African Development Bank in Financing Regional Integration Projects in Africa," in Anyang' Nyong'o (ed.), Regional Integration in Africa: Unfinished Agenda. Ouattara, A., "Study on African Systems of Payments," Seminar 1NTAL/UNCTAD on Economic Integration and Payments Arrangements: Their Potential Contribution to the Solution of the Developing Countries' Debt Problem, Argentina, November 1984. PTA Clearing House Executive Secretary's Report, November 1985. Reserve Bank of Zimbabwe, PTA Multilateral Clearing Facility: Operational Procedures Manual, January 1984. Robson, P., "Economic Integration in Equatorial Africa, " in A . Hazlewood (ed.), African Integration and Disintegration. , The Economics of International Integration, 2d ed., Allen and Unwin, London, 1984. , Integration, Development and Equity: Economic Integration in West Africa, Allen and Unwin, London, 1983. , "Performance and Priorities for Regional Integration with Special Reference to West Africa," in T. Rose (ed.), Crisis and Recovery in Sub-Saharan Africa, OECD, 1985. , "Problems of Integration between Senegal and Gambia," in A . Hazlewood (ed.), African Integration and Disintegration. Rose, T., " A i d Modalities: Sector Aid as an Instrument in Sub-Saharan Africa," in T. Rose (ed.), Crisis and Recovery in Sub-Saharan Africa, OECD, 1985.

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Rossen, S., "Aspects of Economic Integration in Africa with Special Reference to the Southern African Development and Coordination Conference," in T. Rose (ed.), Crisis and Recovery in Sub-Saharan Africa, OECD, 1985. Rothchild, D., and N. Chazen, (eds.), The Precarious Balance: State & Society in Africa, Westview Press, Boulder, Colo., 1988. Shirley, M., "Promoting the Private Sector." Finance and Development, March 1988. Simba, I., and F. Wells, Development Cooperation in Southern Africa and Procedures, OECD, 1984. Tanzi, V., "The Role of the Public Sector in the Market Economies of Developing Asia: General Lessons for the Current Debt Strategy," IMF occasional paper WP/88/7, 22 January 1988. Tiboteh, T. N., "A Scientific Perspective for Development through Integration in Africa," paper presented at the Fifth Symposium of the Special Commission on Africa on Regional Economic Integration in organized jointly with the African Development Bank in Africa, Abidjan, Cöte d'lvoire, 5 - 8 September 1989. UNCTAD, World Comniodity Trade: Review and Outlook, 1983. Viner, J., The Customs Union Issue, Carnegie Endowment for International Peace, New York, 1950, referred to in M. B. Krauss (ed.), The Economics of Integration, Allen and Unwin, London, 1973. WACH Annual Reports, 1976/77-1984/85. Wangwe S. M., "A Comparative Analysis of the PTA and SADCC Approaches to Regional Economic Integration," in IBRD Background, Papers, vol. 4. West Africa, 18 June 1984, 19 April 1985. Wiles, P.J.D., Communist International Economics, Basil Blackwell, Oxford, 1968, referred to in Robson, P., Integration, Development and Equity, p. 17. World Bank, World Development Report 1986, referred to in Stewart, F., "Money and South-South Cooperation," Third World Quarterly, vol. 9, no. 4, October 1987. Young, C., "The African Colonial State and Its Political Legacy," in D. Rothchild and N. Chazan (eds.), The Precarious Balance.

INDEX

Abuja Treaty, ix-x, 95 ACMS Financial News Analysis, 104 ADB. See African Development Bank Aden, 17 Administration, imprudent, 65-70 African Development Bank (ADB), xiii, 5, 6, 10; debt plan, 103; future for regional cooperation, 119-123; payments unions, 117, 119 African Monetary Fund (AFMF), 110-111 Africa's Priority Program for Economic Recovery (APPER), 80 Afro-Asian Peoples Solidarity Organization (AAPSO), 9 Agriculture, 42,121 Aid, economic. See Foreign funding Algeria: Casablanca Charter, 10; conflicts, 70; CPCM membership, 19, 20; employment, 41; exports, 42; ideology, 69; payments union, 118 All-African Peoples Conference (AAPC), 9 Andean Group, 38 Andean Reserve Fund (ARF), 109 Angola, 18, 41, 43, 69, 81, 83 Arab Economic Unity, 20 Arab League, 20 Arab Monetary Fund (AMF), 109-110 Argentina, 38, 49 Asante, S. K. B., 96 ASEAN Swap Arrangement (ASA), 109 Asian Development Bank, 124 Association of African Central Banks (AACB), 10, 13 Association of West African IGOs, 94 Balance-of-payments deficits, 49-51 Banco Latinamericano de Exportaciones (BLADEX), 112 Bank of Central African States (BEAC), 15

Bank of Equatorial African States and Cameroon, 15 Bank of French Equatorial Africa and Cameroon (AEF), 11, 15 Bank of French West Africa and Togo (AOF), 11, 15 Bank of Ghana, 52 Bank of Rhodesia and Nyasaland, 17 Bank of West Africa (BAO), 11, 15 Bank of Zambia, 17 Banks, central, 13, 15, 17-18, 40-41, 52-54. See also African Development Bank (ADB) Basutoland (Lesotho), 18 BCEAO. See Central Bank of West African States BEAC. See Bank of Central African States Bechuanaland (Botswana), 18 Belgian colonies, former, 15 Benin, 11-12, 41, 65-66 Bipolar system, old, 3 Blumental, Erwin, 17 Botswana, 18, 41, 43, 52, 66, 81, 83 Boundaries, artificial political, 69 Brazil, 38, 49, 104-105 Budgets, annual, 80 Burkina Faso, 11-12, 41-43, 65-66 Burundi, 15, 19, 31, 41-42, 55, 66 CACH. See Central African Clearing House Cameroon, 14-15, 38, 41, 66 Cape Verde, 13 Caribbean Free Trade Association, 38 Caribbean Multilateral Clearing Facility (CMCF), 113 Casablanca Bloc, 9 Casablanca Charter, 10, 118 CEAO. See West African Economic Community

139

140

INDEX

CEEAC. See Economic Community of Central African States Central Africa: ADB, 121; heterogeneity of subregional groupings, 58; intergovernmental organizations, 13-15, 27-30; overlapping cooperation schemes, 66, 94; reserve pooling schemes, 106; tariffs, 46 Central African Clearing House (CACH), 15, 57 Central African Republic (CAR): BEAC membership, 15; cooperative nature, 14; employment, 41-42; exports, 43; overlapping cooperation schemes, 66; UDEAC membership, 29, 62 Central American Stabilization Fund (CASF), 109 Central Bank of West African States (BCEAO), 11, 15, 54 Chad, 14-15, 42, 62, 66, 69 Civil wars, 69, 91 Clearinghouses: CACH, 15; foreign exchange, 56-58; future for regional cooperation, 5-6, 113-116, 119; laissezfaire economic model, 40-41; WACH, 13 Climatic conditions, 81, 91 Cocoa, 42 Cold War, 35-36 Collective self-reliance (CSR), 76-80 Colombia, 38 Colonial policies/structures, 11, 80 Commodities, primary, 37, 41-42, 48 Common external tariff (CET), 23-24 Common interests, x Comoro Islands, 19, 41, 45-46, 55 Conference of Independent African States (CIAS), 9 Conflicts, political, 69-70 Congo, 14-15, 29, 41-42 Continentalism, 9-10 Cooperation schemes, overlapping, 65-68, 86, 93-95. See also Future for regional cooperation; Laissez-faire economic model; Regional cooperation; Reorientation attempts Cote d'lvoire: BCEAO membership, 11; CEAO membership, 12; conflicts, 69; employment, 41-42; manufacturing sector, 44; overlapping cooperation schemes, 65-66; regional cooperation tax, 24

Cotton, 42 Council of ministers, 40 CPCM. See Maghreb Permanent Consultative Committee Credit: export, 111-113; foreign exchange, 51-52; regional facilities for, 108-111, 119 Currencies, limited convertibility of, 108, 117-119 Customs revenues, 45-48 Customs union theory, 36-37 Debt burden, 49-51, 91 Debt/equity swaps, 102-105 Defense and Economic Cooperation Treaty, 20 Democratization, 126 Desertification process, 81 Developing countries: collective self-reliance, 76; debt/equity swaps, 102-104; laissez-faire economic model, 35-41 Development banks, 40-41, 52 Development plans, national, 25, 80, 92, 96-105 Diouf, Abdou, 13 Distributional problems with free market forces, 37-39, 58-62 Djibouti, 19, 41, 45-46 Domestic markets, 2-3 Donors and boosting integration process, 84, 86-87, 119-125 Drought, 81 East African Common Market (EACM), 1, 16, 59-61, 70 East African Currency Board (EACB), 1, 16-17 East African Development Bank (EADB), 61 East African Economic Community (EAEC), 18, 60-61 East and Southern Africa, xi-xii, 121; conflicts, 70; heterogeneity of subregional groupings, 58; intergovernmental organizations, 15-19, 30-31; overlapping cooperation schemes, 66-68, 94; political considerations, 69 East Caribbean Common Market, 38 Economic and Customs Union of Central Africa (UDEAC), 14; BEAC coordinating

INDEX

141

with, 15; distributional problems, 62;

Free movement of persons, 26, 29-30, 36

harmonizing national development plans,

Functionalism. See Regional cooperation

30; heterogeneity of subregional

Future for regional cooperation, 91-93;

groupings, 58; inactivity, 2; project

clearinghouses, 5-6; donor roles,

development, 28; revising, 29; structural

119-125; harmonization of national

disequilibria, 38

development plans, 96-105; payment

Economic Commission for Africa ( E C A ) , xii, 1, 10, 118 Economic Community of Central African

mechanisms, 106-119; political considerations, 125-127; rationalization, 93-95

States (CEEAC, ECCAS), 14, 30 Economic Community of the Countries of

Gabon, 14-15, 41, 66

the Grand Lakes (CEPGL), 15, 30

The Gambia, 13, 41, 70

Economic Community of West African

Ghana, 10, 41, 52, 118

States (ECOWAS), xii, 13, 25-27; C E A O

Governments. See Political considerations

cooperating with, 67-68; distributional

Great Britain, 10-11, 16-17, 59

problems, 58, 62; foreign exchange,

Gross domestic product (GDP), 41, 44, 107

55-56; harmonizing national development

Gross national product ( G N P ) , 37, 85

plans, 96; limited convertibility of

Guatemala, 38

currencies, 108; monetary union, 107;

Guinea, 10-11, 15, 41, 65, 69, 118

overlapping cooperation schemes, 93-94;

Guinea, Equatorial, 41, 43, 66

ownership participation requirements,

Guinea-Bissau, 41

44—45; success of, 2 Economic cooperation. See Regional cooperation Economic Reform and Structural Adjustment Program (ERSAP), 54

Harmonization of national development plans, 25, 30, 80, 92, 96-105 Heterogeneity of African subregional groupings, 38, 58-62, 77, 114

ECOWAS. See Economic Community of West African States

Ideologies, political, 69

Egypt, 19-20, 42, 54, 69, 118

IMF. See International Monetary Fund

El Salvador, 38

Imports, 3, 37, 43

Employment in primary/manufacturing

Incrementalism, 36

sector, 41-42 Equatorial Customs Union (UDE), 14, 27-28 Ethiopia, 17, 19, 41-43, 69 European Economic Community (EEC), x, 35-36

Industrialization, 79, 121 Integration strategy. See Future for regional cooperation; Laissez-faire economic model Intergovernmental organizations (IGOs), x; Central Africa, 13-15, 27-30; East and

European Union, 3

Southern Africa, 15-19, 30-31; foreign

Exchange rates, 99

exchange, 54-58; overlapping cooperation

Export credit, regional, 111-113

schemes, 65-68, 86, 93-95; sectoral

Exports, 3, 42-43, 48

proposals, xi; success of, 1-2; West

Exports participation note (EPN), 103

Africa, 10-13, 23-27 Interim Council of Ministers of the

Food aid, 85 Foreign exchange, 35, 48-58 Foreign funding: future for regional cooperation, 123-125; international

Countries of West Africa ( I C M C W A ) , 1 International Development Agency ( I D A ) ,

120 International Monetary Fund (IMF), 85;

politico-economic order, 3-4; key issues

A D B debt plan, 103; central banks, 17;

for, x-xi; SADCC, 84, 86-87, 92

conditionalities of, 3; reform policies, 5,

France, 66, 106-107; French-speaking countries, 10-11, 14-15, 29, 68-70

92; structural adjustment programs, 98 International politico-economic order, 3 - 4

142

INDEX

Interventionism, 75,-78 Investments, coordination of, 39 Iron ore, 42-43 Joint ventures, 39 Kenya: banks, 52; EACB membership, 17; EACM membership, 16, 38, 59-61; employment, 41; imports, 43; PTA membership, 19, 55 Labor, skilled, 80 Lagos Plan of Action (LPA), 75, 78-81, 87, 117-118 Laissez-faire economic model, x, 35-41, 96; customs revenues, 45-48; distributional problems, 37-39, 58-62; foreign exchange, 48-58; multinational organizations, 43-45; structural disequilibria, 41-43 Latin American countries, 112 Latin American Integration Association (LAIA), 57, 113-114 Leaders, political, 69-70 Lesotho, 18-19, 42, 66, 81 Liberalism, 69-70 Liberia, 12, 41-42-43, 65, 69 Libya, 19-20, 41-43, 69 Licensing systems, 39 Lilangeni (Swaziland currency), 18 Limited convertibility of currencies, 108, 117-119 Lomé Convention, 66 Loti (Lesotho currency), 18 Lusaka Declaration, 19, 82, 84 Madagascar, 42, 66 Maghreb Arab Union (MAU), 20 Maghreb Permanent Consultative Committee (CPCM), 1,19-20, 70 Malawi, 18-19, 41, 81, 83, 85 Mali, 12; BCEAO membership, 11; Casablanca Charter, 10; employment, 41; exports, 42; imports, 43; overlapping cooperation schemes, 65-66; payments union, 118 Mano River Union (MRU), 12, 24-25, 46, 69 Manufacturing sector, 37, 41-42, 44, 62 Market forces. See Laissez-faire economic model

Marxism-Leninism, 69-70 Mauritania, 11-12, 19, 43, 65-66, 69 Mauritius, 19, 41, 43, 44, 45, 55, 61 Mexico, 38, 49, 103 Mombasa, 59 Monetary unions, 106-107 Monrovia Conference on Banking Systems, 54 Monrovia Declaration, 78-81 Morocco: banks, 52; Casablanca Charter, 10; conflicts, 70; CPCM membership, 19-20; ideology, 69; manufacturing sector, 44; payments union, 118; primary commodities, 41 Most-favored-nation treatment (MFN), 67-68, 79 Mozambique, 18, 41, 69, 81, 83 Multinational organizations, 35, 38, 43-45 Multinational Programming and Operational Center (MULPOC), 94 Newlyn, W. T., 17 Niger, 11-12, 41^t3, 65-66 Nigeria, 12, 41-42, 52, 54 Nigerian Trust Fund, 6 Non-Aligned Movement, 76 North Africa, 31-32; ADB, 121; conflicts, 70; CPCM membership, 19-20; overlapping cooperation schemes, 66, 95 North African Subregional Committee of the Association of African Central Banks (AACB), 20 North American Free Trade Agreement (NAFTA), 3 Nyasaland (Malawi), 17 Organization for the Development of the Senegal River (OMVS), 12 Organization of African Unity (OAU), 1, 9-10, 75 Organization of Senegal River States (OERS), 1, 11, 69 Overlapping cooperation schemes, 65-68, 86, 93-95 Ownership participation requirements, 44-45 Pan-African Economic Community (PAEC), 75-76, 87-89 Pan-African Freedom Movement of East and Central Africa (PAFMECA), 9

INDEX

Pan-Africanism, 9 Paris Club, 103 Participation by enterprises, xii-xiii Payments mechanisms: clearinghouses, 113-116, 119; credit facilities, 108-111; export credit, 111-113; limited convertibility of currencies, 108; payments unions, 116-118; reserve pooling schemes, 106-107 Payments unions, 6, 10-116-118 Pearson Commission, 124 Philip, Kjild, 60 Political considerations: conflicts, 69-70; French-speaking countries, 68-69; future for regional cooperation, 125-127; international politicoeconomic order, 3; Lagos Plan of Action, 81; laissez-faire economic model, 39-40; North Africa, 20; resources for regional endeavors, x Population demographics, 2 Preferential Trade Area for the Countries of Eastern and Southern African States (PTA), x, xi-xii, 18-19, 31; customs revenues, 46; distributional problems, 61-62; foreign exchange, 55-56, 58; heterogeneity of subregional groupings, 58; overlapping cooperation schemes, 67-68; ownership participation requirements, 45; SADCC coordinating with, 86, 94-95 Primary commodities, 37, 41-42, 48 Privatization, 99-102 Production: clustering of, 38; customs union theory, 36-37; integration process, 97 PTA. See Preferential Trade Area for the Countries of Eastern and Southern African States Public-sector enterprises, 99-102 Public utility loans, 121 Pula (Botswana currency), 18 Rand, South African, 18 Rationalization of subregional organizations, 93-95 Reallocation gains, 37 Regional cooperation: Central Africa, 13-15, 27-30; challenge of, 4; continentalism, 9-10; East and Southern Africa, 15-19, 30-31; North Africa, 19-20, 31-32; West Africa, 10-13, 23-27. See also Future for regional cooperation;

1 4 3

Intergovernmental organizations (IGOs); Laissez-faire economic model; Reorientation attempts Regional cooperation tax (TCR), 23-24, 67 Reorientation attempts, 75-76; collective self-reliance, 76-78; Lagos Plan of Action, 78-81; Pan-African Economic Community, 87-89; SADCC, 81-87 Republic of South Africa (RSA), 66; destabilization attempts, 81, 86; majority rule, 95; SADCC development projects, 85 Reserve Bank of Malawi, 17 Reserve Bank of Rhodesia, 17 Reserve Bank of Zimbabwe, 19 Reserve pooling schemes, 106-107, 118 Rhodesia, Northern (Zambia), 17 Rhodesia, Southern (Zimbabwe), 17 Ricardian model of production, 36 Rwanda, 15, 19, 41-42, 55, 66 SADCC. See Southern African Development Coordination Conference Santo Domingo Agreement (SDA), 109 Sâo Tomé and Principe, 41, 43 Secretariat, executive, 40 Sector aid, 124-125 Sectoral coordination, xi-xii. See also Regional cooperation Senegal, 13, 24, 41, 65-66, 69 Senegambian Confederation, 1, 25, 69-70 Seychelles, 41, 66 Sierra-Leone, 12, 41, 43, 65, 69 Skilled labor, 80 Socialism, 69-70 Social service loans, 121 Solidarity funds, 38, 40-41, 54-55 Somalia, 17, 19, 41 South Africa. See Republic of South Africa (RSA) South African Customs Union (SACU), 18 South African Reserve Bank, 16, 18 Southern African Center for Cooperation in Agricultural Research (SACCAR), 83 Southern African Development Community (SADC), 95 Southern African Development Coordination Conference (SADCC), x, xii-xiii, 18-19, 75; development projects, 84-87; foreign aid, 92, 123-124; overlapping cooperation

144

INDEX

schemes, 68; PTA coordinating with, 94-95; shortcomings of, 86-87, 96; South Africa, 81; structure/responsibilities of, 82-83; success of, 2 Southern African Transport and Communications Commissions (SATCC), 83 Southern Rhodesian Board, 16-17 Soviet Union, former, 3 State-owned enterprises, 99-102 Structural adjustment programs (SAPs), xi, 98-99 Structural disequilibria, 37-38, 41-43, 91 Subregional level. See Regional cooperation Sudan, 19, 41-42, 69 Sugar, 43 Swaziland, 18-19, 41, 44, 66, 82 Tanganyika, 16-17, 59-60 Tanzania, 17; currency flight, 61; EACM membership, 16; employment, 41; ideology, 69; overlapping cooperation schemes, 66; PTA membership, 19; SADCC membership, 18, 82-83; trade issues, 84 Tanzania Zambia Railway (TAZARA), 85-86 Tariffs: CEAO, 23-24; customs union theory, 36; ECOWAS, 26; Equatorial Customs Union, 27; indispensability of, 45-48; Lagos Plan of Action, 79; liberalizing intragroup trade, 40; Mano River Union, 24-25; overlapping cooperation schemes, 67-68; PTA, 31; UDEAC, 29 Tertiary sector, 42 Tobago, 38 Togo, 11, 41, 65-66 Trade: ADB, 122; CEAO, 23-24; clearing houses, 113-116; dependence on external, 3, 43; developing countries, 37-38; intraAfrican, 3, 43, 51-54, 56, 113; laissezfaire economic model, 36; liberalizing intragroup, 40; Lusaka Declaration, 84; Mano River Union, 24-25; overlapping cooperation schemes, 67-68; SADCC, 85; UDEAC, 29-30 Transportation loans, 121 Treaty of East African Cooperation, 60

Treaty of the Council of the Entente States, 11

Tribunal, 40 Trinidad, 38 Tubman, William, 12 Tunisia, 19, 42, 69 UDEAC. See Economic and Customs Union of Central Africa Uganda, 19, 31, 41-42, 59-61, 69 Union Africaine et Malagache (UAM), 9 Union of Central African States (UEAC), 14, 38, 62 United Nations Conference on Trade and Development (UNCTAD), 114 United Nations Development Program (UNDP), 12 Venezuela, 38 WACH. See West African Clearing House WAMU. See West Afriican Monetary Union West Africa: ADB, 121; distributional problems, 62; intergovernmental organizations, 1-2, 10-13, 23-27; overlapping cooperation schemes, 65-68, 94; political considerations, 69; reserve pooling schemes, 106 West African Clearing House (WACH), 13, 56-57, 114-116 West African Common Fund (WACF), 115 West African Customs and Economic Union (UDEAO), 12 West African Customs Union (UDAO), 11 West African Economic Community (CEAO), 12, 23-24, 58, 67-68 West African Free Trade Area (WAFTA), 1 West African Monetary Union (WAMU), 107, 116 World Bank, 5, 92, 98, 103, 124 Zaire, xii, 15, 41, 57, 62, 66 Zambia, 31, 41, 44, 66, 82-83 Zanzibar, 17 Zimbabwe: ideology, 69; manufacturing sector, 41, 44; overlapping cooperation schemes, 66; PTA membership, 19, 31, 56; SADCC membership, 18, 82-83; trade, 85

ABOUT THE BOOK AND AUTHOR

Regionalism, Ahmad A l y argues persuasively, is the most appropriate strategy for the achievement of autonomous, self-sustained development in Africa. A l y traces the causes of the failure thus f a r of attempts at economic cooperation in the continent, citing in particular the adoption of inappropriate integration schemes, the multiplicity of overlapping arrangements, the dominance of politics, and, most fundamentally, the widening gap between aspirations and reality. A f t e r assessing the performance of the major cooperation and integration efforts, he proposes a three-stage scenario for gradual change. Eschewing wishful thinking and quick f i x e s , A l y ' s analysis draws on both sound economic theory and his own direct experience to fashion a workable response to the demands of A f r i c a ' s current economic problems. AHMAD A. H. M . ALY is professor of economics at Al-Azhar University, in Cairo. Formerly deputy director of research at the African Centre for Monetary Studies, in Senegal, he has also served on the staff of the African Development Bank in Cote d ' l v o i r e and of the Central Bank of Egypt.

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