The regional dimension of industrial policy: the role of regional integration and regional cooperation Milasoa Chérel-Robson Africa Section, Division for Africa, Least Developed Countries and Special Programmes, UNCTAD Workshop on Industrial Development and Globalisation 19 May 2011

Structure of the session Part I: Regional integration I. Brief history of regional integration in Africa II. Regional integration has economic development motives III. The relevance of regional integration for industrial development IV. Obstacles to furthering regional integration in Africa of relevance to industrial development Part II: South South cooperation in Africa I. The state of South-South cooperation II. Relevance of South South cooperation for industrial development in Africa III. Selected recommendations for increasing the relevance of South South cooperation for industrial development 3-4 minutes per slide including class discussion and questions

Part I: Regional integration I. Brief history of regional integration in Africa Key points: understanding the origins and the rationale behind regional integration in Africa. Understanding the links between integration at Pan African level and integration at sub-regional.

Part I: Regional integration I. Brief history of regional integration in Africa Regional integration in Africa dates back to the 1960s and had mostly political motives. 1963: Creation of the Organisation of African Unity (OAU). Subregional groupings were created to provide the underpinnings of the continent-wide African Economic Community (AEC) by 2027.

II. Regional integration has economic development motives Key points: Unpacking the development benefits that can be gained from regional integration.

II. Regional integration has economic development motives (1) Theoretical motivations for trade blocs: –Allocation effects A corrolary of the allocation effect is scale and variety effects. –Accumulation or growth effect Higher efficiency and faster accumulation improves competitiveness.

Regional integration has economic development motives (2) Defined as intra-Afican flows of trade in goods, services, investment and migration Improves competitiveness Allows economies of scale Serves as a launching pad for African economies effective participation in the global economy.

Table 1: Current state of intra-African trade (table 4 p 25 of EDAR 2009)

III. The relevance of regional integration for industrial development Key points: Looking specifically into the positive impact that regional integration can have on industrial development. Differentiating between potential benefits for domestic and foreign firms.

III. The relevance of regional integration for industrial development (1): providing economies of scale for domestic firms Lowering trade barriers increases market size. The potential of the African market for manufacturing goods produced in Africa is real: 40 percent of exports of manufacturing in Africa come from within Africa. Six out of the 10 fastest growing economies in the world over were African.

Africas export composition

The relevance of regional integration for industrial development (2): lowering the cost of infrastructure development The pooling of resources from different countries to build key infrastrure essential for improving competitiveness. Ex: the North/South corridor in ESA. Regional integration brings more peace and security that in turn favour the pooling of resources.

The relevance of regional integration for industrial development (3): harmonisation of regulatory and legal framework Harmonisation of taxation, regulation of investment and rules of origins lowers transaction costs. For example, SADC: harmonisation of taxation, investment, stock exchange and insurance.

The relevance of regional integration for industrial development (4): can collectively attract FDI The characteristics of a trade bloc can influence the locational decision of foreign firms because of larger market size. Members of trade blocs can also collectively have a set of policies for FDI.

IV. Obstacles to furthering regional integration in Africa of relevance to industrial development Key point: Discussing what hinders regional integration and hence industrial development.

IV. Obstacles to furthering regional integration in Africa of relevance to industrial development Costs of membership Perceived threats by domestic private sector: there is no viable mechanism for redistribution using benefits of the net gainers to compensate the more disadvantaged regional partners. Institutional capacity of regional bodies in fullfilling their mandates.

Part II: South South cooperation The state of South-South cooperation in Africa. Key points: state of South South cooperation in Africa. Understanding the mechanisms behind Africas cooperation with other non-African developing countries.

Part II: South South cooperation I. The state of South-South cooperation in Africa (1) Regional cooperation within Africa -> regional integration through regional economic communities (covered in Part I). Regional cooperation with non-African developing countries has increased since List of countries: the Bolivarian Republic of Venezuela, Brazil, China, Cuba, India, Kuwait, the Republic of Korea, Saudi Arabia, Turkey and United Arab Emirates.

The state of South-South cooperation in Africa (2) Through political, economic and technical cooperation. Interaction with countries enable exposure to lessons learnt from their development experience that could be of benefit to African countries.

II. Relevance of South South cooperation for industrial development in Africa Key points: understanding the mechanisms through which South South cooperation could benefit industrial development in Africa.

II. Relevance of South South cooperation for industrial development in Africa (1) Southern partners generally use official flows to promote trade and investment activities in Africa. It is not aid but expressions of solidarity and cooperation borne out of shared experiences and sympathies.

Share of Africas total trade with developing countries including non African countries has been on the rise since 1990

Relevance of South South cooperation for industrial development in Africa (2): investment in infrastructure and productive sectors

Relevance of South South cooperation for industrial development in Africa (3) potential market for manufacturing despite heavy concentration of exports of primary commodities for now. Africas exports of Low to Medium and High technology manufacturing to Republic of Korea, Saudia Arabia, United Arab Emirates was higher than 10 percent in 2008.

Southern FDI to Africa is increasing but the industrial sector still has to attract more investment in manufacturing. The current situation is that manufacturing constitutes a very small part of Southern FDI. Relevance of South South cooperation for industrial development in Africa (4)

Relevance of South South cooperation for industrial development in Africa (5): Links with technology-conscious economies.

Relevance of South South cooperation for industrial development in Africa (6) Formation of alliances between Africa and Southern countries has changed the pace and dynamics of multilateral trade and climate change negotiations.

III. Selected recommendations for increasing the relevance of South South cooperation for industrial development Key points: Listing what needs to be done to increase the positive impact of South South cooperation on industrial development in Africa.

III. Selected recommendations for increasing the relevance of South South cooperation for industrial development Engagement at regional level not only on a bilateral level. Devise a regional industrial strategy if non existent. Influence the composition of trade and investment and increase the role of manufacturing. Establish a real FDI for development policy. Be assertive.

Thank you ! Main sources: UNCTADs Economic Development in Africa Report for 2009 and Additional references will be provided on CD of the course.