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Africa and the European financial crisis: Trevor Manuel's analysis

Harare:  We should be rather more concerned about the slow pace of constructing the regional economic building blocks on the continent, though. We adopted and signed correct protocols that made the commitments early. The Abuja Treaty of 1991 marked the point at which we began to lay down the foundations, and identify the building blocks towards greater African integration within an African Economic Community (AEC). The Treaty presented a comprehensive staged 34-year strategic plan towards an AEC. But we have not advanced in an ordered manner towards those very goals.

Granted, there were distractions – including the idea of an immediate United States of Africa – and we even wasted the opportunity to mark the fiftieth anniversary of the Ghanaian liberation with a great leap forward. But, we are now in different frame of mind, with the advantage of having observed how rushed integration creates problems, yet understanding that we have no option but to advance towards integration.

Or are we?

In SADC the RISDP was crafted to provide strategic focus and direction but, we must admit that the slippage on the indicative targets is unacceptable. If we want to improve on the quality of life of SADC citizens then we must be mutually accountable to our partners. The RISDP sets out our targets, and they have been agreed to at various points by our Heads of State. If we cannot attain these targets, then the prospects of realising greater African integration will be stalled.

The SADC region joins with COMESA and the East African Community to provide for a larger free trade area. By extending the free trade area from Cape to Cairo, we are starting to bring together a larger African market that is expected to grow by an average of 6.2 percent between 2010 and 2040. This is, generally, a positive prospect, but it is inadequate. If we are to mitigate the short-to-medium term fall out of the European crisis, and expand our economies in Africa to take advantage of the shifts in power in the 21st century, we need to look at our region more critically.

We must look at inefficiencies between the building blocks – the regional trade agreements, the regional financial and customs unions - and between neighbouring countries to improve our development. If we want these outcomes, we will have to hold our leaders much more accountable for the outcomes. The evidence shows that one measure of the BRICS countries’ success is increased harmonisation of policies; from reciprocity in trade to establishing investment mechanisms and instruments among member-states.

If we are to expand our economies, attract domestic and foreign investment and create jobs, we need closer integration on the continent and more purposeful behind-the-border harmonisation of policies. It is vital, therefore, that we identify the overlaps and possible duplications between regional formations. Moving forward in the next decade we will have to eliminate these inefficiencies as part of increasing intra-Africa trade and investment.

There are, currently, a little more than a billion people in Africa. This is a vast market and comparable to the 1.3 billion Chinese and India’s 1.2 billion. This is where the similarities between ourselves and the Chinese and Indians end.

We can expand our economy significantly, but we are held back, in many ways, by our territorial differences. By 2040 the African population is expected to reach 1.8 billion people. If we are to raise the well-being and prosperity of our people, we need to expand our economies. We need to expand intra-Africa trade, and agree on what/how we add value to our natural resources and how we trade. Africa currently accounts for less than 3 percent of world trade, and non-oil exports have been about 1% since 1992. Intra-Africa trade is 10 percent; this is very low when compared to NAFTA (40%) and Western Europe (60%).

Africa has the highest export product concentration of any continent, coupled with a high export market concentration. These are a reflection of continued reliance on primary commodity exports mainly to the European Union, United States of America and China. If we set the conditions for increased domestic consumption Africa could address its material – especially food – needs within a generation. To achieve this we need to invest in the software and the hardware of trade; trade facilitation systems and networks and hard infrastructure.

In 2009 African heads of state agreed to drive presidential lead projects in infrastructure. One outcome of this is the North-South corridor. The hard infrastructure of regional integration is necessary, but insufficient. We need roads, rail lines, power plants, telecom lines, satellites, cables, ports, water ways and water treatment plants.

Our approach has to be more comprehensive to include discussions on trade, including trade facilitation, energy, financial services, tourism, infrastructure development, agriculture, healthcare, capital and bond markets. African countries are losing out on billions of dollars in potential trade earnings every year because of infrastructure deficits, high trade barriers with neighbouring countries. In some places it is easier for African countries to trade with the rest of the world countries on the continent.

We will not achieve stability, expand our economies, create jobs and make growth more inclusive without stable macro-economic frameworks, fiscal discipline, effective revenue collection and reliable banking systems that are beyond the influence of day-to-day political workings. There is no country in the world that has expanded its economy and distributed prosperity and opportunity, without getting these fundamentals in place. Once this is achieved, domestic and foreign investors will return.

One of the questions that seem to do the rounds at most gatherings such as this is how do we, Africans, approach China or India. My advice is always that we have to be bold in our engagement with China. We must organise ourselves, continentally, as part of the process of engagement. We must start from the understanding that China needs us, as much as we may need China. We must, therefore, find ways of leveraging our ownership of important natural and human resources. We should not engage with China in supplication, but confidently on the basis of our strengths. It is generally true that states secure trade agreements, but private companies trade and exchange goods and services across borders. We have to narrow the gaps and the mistrust between private corporations and government.

Honourable guests, organised business has a vital role to play in expanding the economy, and making gains from this expansion more inclusive. We cannot expect foreign investors to bring their money into the country if we, ourselves, don’t show any commitment to our countries. We need to make significant changes in establishing uniform, rational, consistent and predictable policies within and across countries. This is the sine qua non of integration and co-operation, and evidence from the most successful trade blocs, like NAFTA or ASEAN, has demonstrated the gains that can be made from uniform, rational, consistent and predictable policies and effective integration.

We have to create a domestic political and regulatory environment that ensures foreign investors that their investments will be safe; that they will be able to repatriate profits, and that there is a skilled workforce. We must focus on the hard infrastructure like roads and rail networks, as well as on the soft infrastructure like trade facilitation, safe warehousing and swift customs clearance procedures.

As we manage the impact of the European crisis on Africa, we must maintain fiscal and macro-economic stability, but leave room for adjustments without creating market distortions. The world is going through a difficult period. We cannot act irresponsibly and irrationally. Money is tight, everywhere. But all SADC countries will have meet their regional obligations towards strengthening the region. It is not, however, a one-way street. There has to be trade-offs and mutual gains. Nobody can throw good money at bad policies or practices. That would simply be irresponsible.

To conclude, I want to return to the lessons we can take from the European crisis.  While we cannot rush integration and monetary union in a decade, we can start by accepting that we have to make important decisions on notions of sovereignty, co-operation and integration. Regional integration and co-operation is not a one-way street. We are freed, now, from the ideological battles that were played out on the continent. Colonialism has ended and notions of imperialism and neo-imperialism have lost their credibility.

If anything we live in a world where the links between societies and economies that considered to be sub-nationally moored and, therefore, discreet, have been strengthened. We must, now, look at removing the impediments to closer co-operation and integration.

There are sovereign and independent 54 countries in Africa, 16 of which are landlocked and non-viable. If we are to establishing a stable and prosperous Africa, we have to stimulate economic activity between ourselves by softening the borders between ourselves. There are no sovereign borders between the 1.3 billion Chinese or the 1.2 billion Indians.

We have to go back to the foundations laid down in the Lagos Plan of Action and the Abuja Treaty and consider the building blocks for creating economic union on the continent – without fear or prejudice.

After what has occurred in Europe we have to reconsider the determinants of improving and measures the quality of life across the continent. This process will not automate. Governments and business can play vital role in correcting misalignments between economies on the continent.

There is a growing data base of reliable statistics on Africa that should help us plot our future steadily and confidently. Policies must be based on evidence, cold facts, and not on opinion, conjecture and ideological biases that serve only to hold us back, by casting individual African states as dependant and others as dominant – we are one people. The sooner we think of Africa in this way, the closer we will get to raising levels of prosperity and seize the 21st century for Africa.

  • Extract from:  Speech by Minister Trevor Manuel at the Africa and the European Financial Crisis – Opportunities and Risks, Harare, 26 November 2012.  Readers can access the complete text of his address, here.
5 February 2013
Trevor Manuel
The Presidency
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