August 2, 2019
_ Yuri Kofner, head, Eurasian sector, CCEIS, HSE, research assistant, IIASA, editor-in-chief, analytical media “Eurasian Studies”. * Munich, 2 August 2019.
Regional integration projects have been picking up steam across the African continent since 2017 with the renewed African Union (AU), a complex trade, economic, military and political bloc of 55 African countries, at the center of these processes.
Today, the AU faces an overly ambitious goal of creating a common market without barriers for the free movement of the four factors of production. This project is known under the name of Continental Free Trade Area. In addition, the AU wants an effective monetary union with a central bank and a single currency. And all these plans are expected to materialize as soon as in 2023, which hardly seems feasible, let alone advisable The introduction of a single currency may result in serious financial and lending crises, considering the major socioeconomic development gaps among African countries and the imperatives of a common monetary policy. It would make much more sense for AU members to move away from the US dollar and coordinate their monetary and fiscal policies for better convergence. In fact, this is the path taken by the Eurasian Economic Union. Still, these are the AU’s plans at this point .
There are several reasons behind this sudden acceleration of integration processes in Africa.
The main reason could be the determination of the European Union to achieve its strategic interests on the African continent. It has to be taken into consideration that the AU budget is primarily formed by “humanitarian aid” and “development assistance” from the European Union, rather than contributions from the AU member countries, which are to be 0.2 percent of their respective GDP. Besides, only 14 of 55 members are delivering on this obligation so far. In 2018, international assistance accounted for 74 percent of the AU’s budget, which came mostly from the EU, while contributions by AU countries made up the remaining 26 percent. In 2019, the AU has a budget of $681.5 million, including allocations of $273.3 million for peace maintenance operations, $249.8 million for AU programs and $158.5 million for the operational budget.
By supporting the creation and operation of a vibrant integration bloc in Africa, the EU may be pursuing the following goals:
First, the Cotonou Agreement between the EU and a group of countries from Africa, the Caribbean and the Pacific (ACP countries) is set to expire in 2020; it provides a framework for Economic Partnership Agreements (EPAs) that guarantee tariff-free access to various African countries for EU exports.
Brussels wants to replace this as quickly as possible, if not hastily, by setting up a free trade area with the entire African Union. Judging by the project’s content and negotiating process, experts from the Berlin-based Dialogue of Civilizations Research Institute (DOC Research Institute) believe that trade liberalization will primarily serve European interests under the formula “your minerals in exchange for our chicken thighs.”
In addition, the EU would benefit from an AU-wide common market and a single customs area in terms of the free movement of goods imported from the EU, as well as due to the fact that it is easier to strike a deal with a single contractor rather than with 55 of them. This is especially relevant for the EU since it acts as the main sponsor of this single contractor. He who pays the piper calls the tune, as the saying goes .
Second, the creation of a common African market for the free movement of the four factors of production will improve the prosperity of its member states in one way or another. These are the same countries that migrants heading to Europe are from. In this connection it could be argued that the European Commission could be tempted to support economic integration within the AU in the hope that in the long run this will help reduce the burden of African migrants heading north. The population in sub-Saharan Africa increased 11.3 percent between 2014 and 2018. Africa, with a population of 1.3 billion, is experiencing a population boom and could reach 2 billion by 2050.
Third, proactive attempts to help the African Union could be driven by a desire to offset China’s growing regional influence. In fact, China increased its foreign investment between 2005 and 2017, with Africa emerging as the third largest recipient of Chinese investment after Asia and Europe. According to the American Enterprise Institute, the investment totaled $248 billion during this period. Against this backdrop, European experts often accuse China of inventing a new form of neo-colonial rule. By 2015, Chinese loans accounted for almost two thirds of new debt contracted by African countries. In particular, Djibouti found itself in severe debt distress due to its excessive borrowing from China, with external public debt as a percent of GDP increasing from 50 percent to 85 percent in two years. Beijing owns approximately half of Angola’s external debt and over 70 percent of Kenya’s bilateral debt, an increase of 10-fold since 2013.
In addition, Asia and Europe are also competing for the African continent in trade. According to the World Bank, Europe ranked first in terms of trade with Africa in 2017, accounting for 30 percent of African exports and 31.3 percent of its imports. But Asia-Pacific is steadily increasing its share and is now second with 18.5 percent of African exports and a 27.7 percent share of imports.
*The article reflects the author’s personal views, which may not coincide with the official position of the National Research University Higher School of Economics and IIASA.
Source: http://valdaiclub.com/Author : Kofner