The East African Community (EAC) has long recognized that regional economic integration can yield significant welfare gains to its member states. However, regional integration has been impeded by: (i) inadequate and poor regional infrastructure networks that raise cross-border transaction costs, and thus limit competitiveness and economic growth; and (ii) disparate legal/regulatory frameworks with weak institutional capacity.
Moreover, national strategic frameworks often are not that strongly aligned with regional priorities for integration and growth. Divergent national attitudes and commitments, perceptions of unequal distribution of the costs and benefits of investment in cross-border infrastructure, and lingering concerns about ceding national sovereignty all have impeded the advance of regional integration.
The member states of the EAC have been making steady progress towards the removal of tariffs and quantitative restrictions to trade. However, these trade policy reform efforts will have only limited success in promoting economic advance through improved regional connectivity and increased intra-regional trade unless they are accompanied by effective measures to alleviate both physical and soft infrastructure bottlenecks.
To facilitate further progress towards the creation of an open, unified regional economic space in East Africa, attention needs to be focused on two strategic pillars:
• alleviation of supply-side constraints created by physical infrastructure bottlenecks;
• harmonization of legal, regulatory and institutional frameworks, and capacity building.
One of the most serious obstacles to regional connectivity and economic integration is poor physical infrastructure. There is a long list of supply-side constraints and bottlenecks: poor road and rail networks with important missing links and significant operational capacity problems; congested and inefficient regional ports; inadequate electricity supply; and poor access to information and telecommunications technology. The elimination of these supply-side constraints will require significant amounts of infrastructure investment.
The countries in the region do not have the resources to provide the necessary financing from general revenues. Moreover, an investment plan of this magnitude cannot be undertaken by the private sector alone. It will require creative partnerships between the public and private sectors supported by complementary strategic investment in key bottlenecks by the World Bank and other multilateral institutions.
In view of the massive investment required, there is an urgent need for a careful sequencing and prioritization—and thus for comprehensive application of cost-benefit analysis. The World Bank could provide significant technical and analytic support to these efforts at strategic planning and evaluation.
The lack of policy harmonization coupled with weak institutional capacity at both national and regional levels is an even more serious impediment to regional integration in East Africa. The benefits of regional integration can only be achieved in the context of harmonization of policy and regulatory environments. Disparities in regulatory treatment across borders introduce distortions that hinder both trade and the aggregate flows of investment on a regional basis.
Similarly, market opening and restructuring in the backbone infrastructure sectors of individual countries need to be complemented by parallel developments (reciprocity) across countries. Otherwise, significant differences in market structures (e.g. in vertical structure and the type of ownership) could lead to inefficient volume and composition of cross-border trade.
Sufficient regulatory and market structure harmonization, the reform of trade-distorting inefficient national regulations, and regional cooperation to overcome capacity constraints thus are essential components of regional economic integration.
Views on regionalism’s welfare implications vary considerably. Some observers argue that regionalism has been used as a vehicle for import-substituting industrialization and consequently has led to inward- rather than outward-looking economic policies. Thus there is a danger that regionalism might actually inhibit Africa’s integration to the world economy and further entrench the continent’s marginalization in an era of globalization.
Others are pointing out that unlike the previous waves of regionalism the initiatives of the past two decades have focused on market liberalization, export- and foreign-investment-led policies. This new wave of regionalism seeks to facilitate the participation of developing countries in the global economy rather than their withdrawal from it through inward-looking import substitution policies.
Indeed, regionalism that focuses on policy coordination, harmonization of administrative rules and regulations, and the removal of cost-raising infrastructure barriers may improve the continent’s investment climate and facilitate economic growth (De Melo et al, 1992; Panagariya, 1994; Mansfield and Milner, 1999; Panagariya, 1999; Lee, 2002; Baldwin, 2006).
This paper argues that infrastructure regionalization could make a significant contribution to East Africa’s economic development by promoting a more efficient utilization of its human and physical resources, strengthening connectivity, reducing the costs of trade, and facilitating the integration of the continent with the global information economy.
Regionalization of regulatory policy in particular could mitigate the problem of regulatory capture, facilitate regulatory reform, enhance the capacity of national governments to make credible policy commitments, and through the pooling of resources, help them overcome technical capacity constraints.
The paper focuses on East Africa in order to provide concrete examples of infrastructure bottlenecks to regional connectivity. However, the paper’s main arguments could are applicable to other parts of the African continent.
- Introduction to: Regionalizing infrastructure for deepening market integration: the case of East Africa, by Ioannis N. Kessides, Policy Research Working Paper 6113, June 2012. The 30 page report can be accessed here.