WHAT CAN BE EXPECTED FROM AFRICAN REGIONAL TRADE ARRANGEMENTS? Some Empirical Evidence

For over three decades Sub-Saharan African (SSA) countries have had an interest in regional integration initiatives to accelerate their industrialization and growth. The projects proposed to foster integration encompass a broad range of initiatives such as: (i) the development of regional ports to help African countries effectively utilize modern shipping technologies, and realize economies of scale in transport; (ii) construction of regional road and rail systems to facilitate the transfer of goods and peoples across national frontiers; (iii) the use of joint tenders to secure imports at more favorable prices; or (iv) cooperation on monetary and financial matters (including export credit guarantee facilities) to encourage domestic and foreign investment. Many of these initiatives could have a positive impact on Africa's industrialization and growth prospects. However, a proper assessment of their likely influence requires a thorough analysis of their costs and benefits which has generally been lacking. This report examines one proposal advanced to foster regional integration, that is, the exchange of trade preferences among Sub-Saharan countries. To assist in this assessment, a database on intra-African trade was developed that is more detailed and comprehensive than information previously available. These data indicate problems associated with African regional trade arrangements are more daunting than is generally recognized. Africa's non-oil exports are highly concentrated in a very few products-none of which are important in regional imports. Sub-Saharan African countries appear to have relatively little to trade with each other. An analysis of historical changes in the other countries' exports indicates the "non-complementarity" problem in African trade cannot be resolved quickly. African intra-trade is also highly concentrated within sub-regional geographic groups with almost no trade occurring between East and West Africa. This finding makes arguments that regional trade can help overcome problems associated with the small size of domestic markets less compelling. Indices of "revealed" comparative advantage (RCA) show the range of processed products African countries export competitively is extremely narrow. Many have a common comparative advantage in the same items-sugar preparations and refined petroleum products appear frequently in the RCA profiles of individual SSA countries. Excluding refined petroleum, one or more African countries have a comparative advantage in products accounting for about 5 percent of total regional imports. These findings indicate Africa faces what appears to be a "lose-lose" situation concerning policies toward regional trade arrangements. If Africa does not develop an export capacity in the key machinery and transport equipment group, the …