The Trade-off of Regionalism: Differentiated Effectiveness
of Integration Strategies in African Regional Economic
Communities.
A thesis submitted for the degree of
Master of Science in Political Science: Political Economy Supervisor: Assoc. Prof. Sebastian Krapohl
Student: Florestan Peters Student ID: 1276130
June 2020 Abstract:
This thesis investigates the deepening and widening dimensions of regionalism, along with their benefits in the context of Africa. The theoretical framework accommodates these dimensions of regionalism and places African regional economic communities along that spectrum. African RECs are in most cases either small and deeply integrated or wide and shallow. The model visualises the trade-off that is central to this thesis. The analysis of the four case studies displays the benefits and drawbacks, in the form of intra-regional trade, external trade relations, and foreign direct investment that come with the respective dimensions. The selected cases are; EAC and SACU as small but deeply integrated communities along with COMESA and SADC as they are large and shallow counterparts. The evidence is arguing that both extremes have the ability to generate competencies and economic effects, but their performance differs: this is the trade-off.
Acknowledgement
I would first like to thank my thesis supervisor Dr Sebastian Krapohl of the Graduate School of Social Sciences at the University of Amsterdam for his support. His expertise in the field of research was a tremendous help for my work. He was – during the corona pandemic – always reachable through zoom when I encountered difficulties. He consistently allowed this paper to be my own work, but steered me in the right direction and supported me to sharpen the argument. I also wish to express my deepest gratitude to Michał Nowak, for his energetic support, friendship, and positive thoughts during the whole masters, along with Alan Tiller for fruitful discussions and comments on previous versions of my thesis. I would like to thank Amadeus Peters for proofreading the final manuscript, all remaining mistakes are of course my own. Many thanks should also go to the participants of the research seminar that accompanied this thesis for their regular input and feedback on my work. I am incredibly grateful to my parents for supporting me throughout my graduate studies. I must also thank Tilla Kross and other friends for their moral support during the writing process of this thesis. Thanks should also go to Kees van Eijsden for extensive discussions on regionalism and culture in Africa.
Table of Content
1. Introduction ... 6
1.1 Topic and research approach ... 6
1.2 Literature review ... 9
1.2.1 Economic approaches to regionalism ... 10
1.2.2 Political science approaches to regionalism ... 11
1.2.3 New regionalism approaches ... 12
1.2.4 Message of previous research ... 13
1.3 Research puzzle ... 13
2. Theoretical framework ... 16
2.1 Trade theory and “FDI attraction mechanism” ... 17
2.2 Economic theory of regional integration ... 18
2.3 Win-Sets - political and economic approach ... 20
2.4 The widening ... 21
2.5 The stability effects ... 23
2.6 External & internal influences - New regionalism approach ... 25
2.7 The model & the trade-off between deepening and widening ... 27
2.8 Research question and hypotheses ... 28
3. Data & case selection ... 29
3.1 Data on trade ... 30
3.2 Data on GDP ... 32
3.3 Data on FDI ... 32
3.4 Data on greenfield FDI ... 33
3.5 Institutional developments ... 33 3.1 Case selection ... 34 3.1.1 SACU ... 34 3.1.2 EAC ... 35 3.1.3 SADC ... 36 3.1.4 COMESA ... 37 4. Case studies ... 38
4.1 SACU ... 38
4.1.1 Trade evidence from SACU ... 40
4.1.2 Foreign direct investments in SACU ... 42
4.1.3 Preliminary conclusion on SACU ... 44
4.2 EAC ... 44
4.2.1 Trade evidence from EAC ... 46
4.2.2 Foreign direct investments in EAC ... 49
4.2.3 Preliminary conclusion on EAC ... 51
4.3 SADC ... 52
List of Tables and Figures
Figure 1: Levels of economic regional integration ... 19 Figure 2: The trade-off model (Data: World Bank, own illustration) ... 27 Figure 3: SACU GDP by member in 2018 (Data: World Bank - own illustration) ... 39 Figure 4: SACU Trade (Data: ITC, UNCOMTRADE, Central Bank of Lesotho - own
illustration) ... 42 Figure 5: SACU FDI (Data: UNCTADSTAT, UNCTAD, World Bank - own illustration)
... 43 Figure 6: EAC GDP by member in 2018 (data: World Bank, UNCTADSTAT - own
illustration) ... 45 Figure 7: EAC Trade (Data: ITC, UNCOMTRADE - own illustration) ... 47 Figure 8: EAC FDI (Data: UNCTADSTAT, UNCTAD, World Bank - own illustration)
... 49 Figure 9: SADC GDP by member in 2018 (data: World Bank - own illustration) ... 52 Figure 10: SADC Trade (Data: ITC, UNCOMTRADE, OEC, Central Bank of Lesotho -
own illustration) ... 54 Figure 11: SADC FDI (Data: UNCTADSTAT, UNCTAD, World Bank - own
illustration) ... 58 Figure 12: COMESA GDP by member in 2018 (data: World Bank, UNCTADSTAT -
own illustration) ... 61 Figure 13: COMESA Trade (Data: ITC, UNCOMTRADE, OEC - own illustration) ... 62 Figure 14: COMESA FDI (Data: UNCTADSTAT, UNCTAD, World Bank - own
illustration) ... 65 Figure 15: Economic benefits of small and deeply integrated RECs and large but low
Abbreviation List
AfCFTA African Continental Free Trade Area ACP African, Caribbean and Pacific
AU African Union
BLNE Botswana, Lesotho, Namibia, and Eswatini
CCIA COMESA Common Investment Area
CM Common Market
CMA Common Monetary Area
COMESA Common Market for Eastern and Southern Africa
CU Customs Union
EAC East African Community
EBA Everything-but-Arms
ECCAS Economic Community of Central African States ECOWAS Economic Community of West African States EPA Economic Partnership Agreement
EU European Union
FDI Foreign Direct Investments
FTA Free Trade Area
GDP Gross Domestic Product GSP General System of Preferences ITC International Trade Centre LDC Least Developed Countries
MFN Most-Favoured-Nation
PTA Preferential Trade Agreement
REC Regional Economic Community
RISDP Regional Indicative Strategic Development Plan SACU Southern African Customs Union
SADC Southern African Development Community
SADCC Southern African Development Coordination Conference TDCA Trade, Development and Cooperation Agreement
TFTA Tripartite Free Trade Area
UEMOA West African Economic and Monetary Union US United States of America
UNCTAD United Nations Conference on Trade and Development UNECA United Nations Economic Commission for Africa WAMZ West African Monetary Zone
1. Introduction
1.1 Topic and research approach
The African Continent is famous among trade scholars for its low level of intra-regional trade. Many rather unpleasant phenomena can be identified as an origin for this status quo. Just to name a few: corruption, armed conflicts, external influences, political instability, etc. (Ezeoha, Okoyeuzu, Udu, & Edeh, 2018; Geda & Kebret, 2008; Panke & Stapel, 2018). In addition, Africa hosts a vast array of regional communities. The communities are different in many respects, some only host a few nations and others, such as the African Union (AU), unify most of the continent.
The levels of integration differ dramatically between the different regional economic communities (REC). Some RECs are monetary unions1, which can be classified as one of the highest levels of economic integration. In contrast, some RECs only exist on paper and have never been realised2. All other RECs can be placed somewhere in between these extremes, per the parameters of 1) size and 2) level of economic integration. Many of the previously mentioned reasons for Africa’s low trade levels came in between the regional integration process and caused its interruption. These circumstances though are a common problem in sub-Saharan Africa. Regional integration can only help to overcome these adverse effects to a limited extent. Africa is also a particular case as there has been intense migration for centuries and ancient trade routes are still in place (Iliffe, 1995). Moreover, some regions have trade languages that are known across borders. The continent, therefore, represents a unique case and can only be compared on a macro level but not on a meso one to other regions.
The first projects of regional integration date back to the colonial times; under the French occupation the West African Economic and Monetary Union (UEMOA)3 was founded (Hartmann, 2016). The French wanted to keep a monetary union with its
1 Such as UEMOA or SACU, whereas the second one, does not share a common currency.
2 Such as ECCAS, whose agreement is ratified, but most policies are not being implemented or
monitored.
3 UEMOA is derived from French: Union Economique et Monétaire Ouest Africaine. UEMOA was
former colonies to facilitate trade. However, this later on proved as a major stumbling4 block for regional integration in West Africa and might be an explanation why the Economic Community of West African States (ECOWAS) hosts two monetary unions.
East and Southern Africa had a slightly different challenge when it comes to regional integration; overlapping communities were the main problem here. The Southern African Development Coordination Conference (SADCC), which was later in the 1990s renamed in South African Development Community (SADC), was initiated for political, as well as economic reasons (Lorenz & Cornelissen, 2011). On the one hand, regional integration is perceived as a political achievement to create stability. On the other, through liberalisation of trade, regional integration is aimed at developing economic integration. Hence, intra-regional trade is a key indicator to trace successful regional integration. In East and Southern Africa, there are various cases of regional integration. As mentioned before, there is SADC, and in 1994 the Common Market for Eastern and Southern Africa (COMESA) was founded. In 2000 the East African Community (EAC) was revived. The Southern African Customs Union (SACU), which overlaps to its full extent with SADC, dates back to colonial times but was renewed on various occasions since then.
This thesis focuses on RECs in sub-Saharan Africa. Most African countries are part of one or more economic communities. The process of regional integration has been initiated partly by colonial powers in the early 1900s; in other cases, external factors were the driving force. Some groups managed to integrate deeply, and others have not (Tavares & Tang, 2011). Most RECs aim at further integration, with the ultimate goal of having a common currency and/or a common parliament.
Ultimately, the African Union (AU) is aiming at creating a Pan-African parliament and a continental monetary zone, unifying the continent. This ambitious plan can be regarded with much scepticism, as previous, smaller, attempts of regional integration have failed. The next step is the African Continental Free Trade Area (AfCFTA)5, which recently came into force. However, given the vast range of cases on
4 Varying currencies in ECOWAS and a lack of autonomy over monetary policy slowed down the
introduction of a common currency in the area, as well as liberalisation of trade.
5 The AfCFTA is only one step in the African Union's Agenda 2063. Ultimately the AU is planning a
regional integration on the continent, it is unclear which one has worked out “best” so far with respect to trade and foreign direct investment (FDI).
African RECs seem to be unable to deepen integration while hosting a large amount of members. They are either small and deeply integrated or wide and shallow. There is a clear trade-off as the RECs are never integrated and large at the same time. The question is: how does this trade-off affect the data with respect to trade and FDI. In other words, which form of regional integration proves to be the most successful under the given circumstances?
To be clear, this thesis is not trying to explain why regionalism – defined as the phenomenon of economic cooperation on a political level among at least three nations within geographical proximity (Jetschke & Lenz, 2013: 626)- might work or not in sub-Saharan Africa. Many reasons, such as lack of political will, can cause regionalism to fail. The underlying assumption for this thesis is that those reasons will repeat themselves in the near future. It is, therefore, crucial to understand in what form regional integration works out best. Especially in the context of the AfCFTA, it is essential to clarify what can be expected from such a large but low integrated REC. Once developed, this theory can also be applied to other regions. Beforehand, it needs a first proof of concept.
This thesis is structured as follows. First, a brief overview of previous research in the field is presented. Secondly, the research puzzle will be explained. Third, the theoretical foundation is elaborated and will conclude with the trade-off model that is central to this thesis. Afterwards, the data, research design, and case selection will be explained in detail. Fifth, the case studies are examined. Lastly, a conclusion will be formulated along with a discussion on the AfCFTA.
The findings are clear with respect to FDI and extra-regional trade. The results on intra-regional trade are ambivalent. While large RECs are more fortunate in attracting FDI than smaller ones, the latter ones are more successful in negotiating extra-regional trade deals. Both forms somewhat boost Intra-regional trade, but its share compared to extra-regional trade is marginal. Both dimensions of regionalism prove to be important but provide different economic benefits.
1.2 Literature review
Research on regionalism has been focused on the European Union for most of its history. In the last decades, an increasing number of scholars investigated other regional integration projects, apart from the European one, as well. Many of those investigations exposed various reasons for the ambivalent results of regionalism in the global south. In the following, some research from political scientists, as well as economic academics is being discussed, to ultimately point out that regionalism is still being assumed to have the ultimate goal of forming large and deeply integrated RECs resulting in a high increase of intra-regional trade. While missing to put in contrast that large RECs are shallow and small ones are highly integrated. Both extremes, though, do not form the same results. The puzzle will be explained in detail in the section following the literature review.
Nye (1968) stresses that political and economic integration do not have to go hand in hand, meaning that the former can be decreasing while the latter increases. This argument opens up the separation of the research agenda into political and economic integration. However, academics often fail to reconcile both research fields when it comes to results, as both economics and politics interact with each other in the field of regionalism. This is undermined by Hartmann’s (2016: 5) statement on sub-Saharan Africa, neglecting the economic component: “There are, in other words, competing regionalisms and competing underlying political projects”.
Hartmann (2016: 1) points out that "the most puzzling aspect of African Regionalism appears to be the continuing gap between the ambition, innovation, and multiplication of state-led regionalism […] and the lack of broader societal engagement with these projects". That quote nearly summarises the issue I perceive with political science only approaches to regionalism in the academic literature, as those somewhat neglect the economic sphere of regionalism. Most political scientists point out, correctly, that regionalism in the global south is a different case than elsewhere. At the same time they perceive political integration and economic integration as a parallel and therefore do not explicitly investigate the latter one.
1.2.1 Economic approaches to regionalism
Candau, Guepie, and Schlick (2019) state that free trade agreements, in general, have a positive impact on trade, with a variation depending on the design of the agreement. Furthermore, they argue that a “hub” effect, whereby one country functions as a trade centre, exists. However, they fail to analyse differences between RECs in terms of widening. Moreover, they used a gravity model for their estimations, neglecting the political sphere in RECs. The gravity model in international trade is often used to make predictions on bilateral, or occasionally multilateral, trade flows based on the sizes of economies and the distance between them among other factors (Anderson, 2011; Pöyhönen, 1963).
Mold and Mukwaya (2016) take RECs into account in their investigation on the impact of the tripartite free trade area (COMESA-SADC-EAC)6. Their industry-specific model predicts that the impact of the tripartite agreement on intra-regional trade will be significant. However, they fail to take into account that external influences might lower the effect. In general, predictions on the potential impact of a free trade agreement tend to be positive. The case of sub-Saharan Africa though proves that some RECs have failed (Olu-Adeyemi & Ayodele, 2007). The reasons for that are not included in economic models that are used for predictions. Similarly Geda and Yimer (2019), as the authors use a gravity model to predict the AfCFTA’s impact on trade, providing useful insights on the economic aspects. However, the level of integration, hence the deepening aspect, does not have relevance in their study.
Gravity model approaches in the field of regionalism provide valuable insight on the efficiency of trade agreements. Moreover, they manage to accommodate the differences between trade creation and trade diversion, which is crucial for development, as trade creation provides more benefits than trade diversion from a macro perspective. The gravity model can only be applied to one designated region at the time, and thus fails to provide insight on a more abstracted level. When applied to multiple regions, the only conclusion often is which REC performed better. Hence, the key dimensions of regionalism and institutional factors, of two different regions cannot
be compared with this method; only the respective economic performance can. Which, again, provides useful insights but does not allow a comparison beyond the performance of trade.
Studies that focus on the impact of political factors on trade such as conducted by Ezeoha et al. (2018) on armed conflicts cannot accommodate the totality of non-economic factors influencing trade patterns, providing insight in only one respect. Other researchers like Sequeira (2016) conduct research on bilateral trade patterns and tariffs only, ignoring the effect of RECs on neighbouring nations. Shepherd (2016) takes a broader approach by examining intra-regional trade between all 44 sub-Saharan nations but also fails to take into account the role of RECs in that respect. As RECs concentrate trade within the community, an analysis of each individual group would provide more valuable insights.
Few studies such as Erdogan’s (2017) and Kamau’s (2010), compare different RECs. Those who do so, though, only focus on a single economic effect, such as trade, investments, or economic growth. Thus, only one development is compared in a single respect. The dimensions of regionalism are somewhat neglected.
1.2.2 Political science approaches to regionalism
Söderbaum (2016: 17) emphasises that “ideas and theories (and to some extent even concepts) of regionalism should be related to the political context in which they develop” and takes the example of Haas’ neo-functionalism in the context of Europe. However, Söderbaum’s approach only provides limited insights. He states that colonialism influenced African regional integration, as UEMOA (a sub-group of ECOWAS), was founded by colonists. So was SACU though and the Economic Community of Central African States (ECCAS). While UEMOA, being a monetary union with the CFA Franc linked to the euro, has proven quite successful in term of economic integration. SACU had a little different evolution though as they have been a customs union for most of their history and only integrated deeper in the last thirty years. ECCAS, in contrast, only exists on paper and is not in force. In a nutshell, three cases of regional integration have had three different integration paths despite having
a similar history. The argument does not go against considering historical backgrounds when analysing regionalism, but towards paying it less attention in some cases. Other factors such as institutional designs, as well as economic structures seem to have a more decisive influence on the success of regionalism than the historical background. Mattli (1999) emphasises the relevance of institutional factors, as well as market factors for the outcome of regional integration. Whether the outcome is fruitful, though, has to be proven case by case (Mattli & Stone Sweet, 2012). Moreover, Mattli and Stone Sweet (2012) point out that integration as a process might stagnate if political leaders perceive the gains of further integration too marginal compared to their loss of autonomy. Baldwin’s (1993) domino theory of regionalism only treats the widening aspect of regionalism and assumes that further integration is the ultimate goal and that further integration will also secure more benefits. Whether this is the case and what role the initial size of a REC has on the deepening is left undiscussed.
Collier and Venables (2008) note that the relatively high fragmentation of the African continent has an essential role in the rather poor economic performance of the continent. The scholars add that the lack of public goods, as well as political stresses in combination with overall poverty, hinders economic development. Their contribution to research, however, opens up a new puzzle of overcoming those demographic and geopolitical issues. Hence, research is driving further away from the essential of analysing the best case under the current situation. In contrast, Draper (2012) points out that sound economic governance in nations could be decisive for successful regional integration as local constituencies are key for international cooperation. Draper's paper though focuses on local regimes and highlights reasons for the failure of RECs.
1.2.3 New regionalism approaches
Scholars of new regionalism (Krapohl, 2017; Krapohl, Meissner, & Muntschick, 2014; Stevens, 2006) manage to combine economic and political factors. External influences are crucial to this line of research. Therefore, the conducted research emphasises external factors, providing fruitful insight on what impact external
influences have on RECs, primarily keep focusing on disruptive aspects. The size of RECs or the level of integration are not prioritised in this field, as the analyses take a case by case approach. Lastly, the external influences are compared between the RECs, but the differences between the RECs are not prominent in new regionalism.
1.2.4 Message of previous research
Economic approaches to regionalism analyse the “success” of a RECs in respect to intra-regional trade mostly, or occasionally investigate investment attraction. However, they fail to attribute the gained economic benefits to the combination of the level of integration and the size of the REC. These analyses take a micro perspective on regionalism and are unable to determine why some RECs integrate deeper, and others do not. Also, extra-continental trade relations and influences are often not considered.
Most research done in the field does not take into consideration the trade-off of capabilities that come with the size or stability. It is not clarified that some RECs fail to integrate, and others succeed rather well while considering external influences.
Bottom line, regional integration projects are often being compared in the perception that deep and wide integration is the ultimate goal, which is usually the set goal by the respective RECs. Yet, they keep failing in Africa. African RECs seem unable to grow in size while deepening integration and only succeed in improving some economic figures but not others (Krapohl, 2017).
1.3 Research puzzle
The current situation is that many overlapping RECs are in place partly operating and partly not, which creates a spaghetti bowl of RECs, implying various standards of production, resulting in non-tariff trade barriers (Baldwin, 2006). The AfCFTA has the potential to provide some structure to varying standards as it includes all current RECs. The AU is planning to take the continent, in the next decade, to the next level of regional integration by creating a customs union. Ultimately, the AU plans to create a
Pan-African parliament with a common market and an African Central Bank. Given the varying success of RECs in Africa, it is unclear whether this is a feasible plan or not. As mentioned before many REC did not manage to succeed in their integration process as planned. Also, the AU is already behind schedule as it initially planned to implement a continental customs union by 20197. Furthermore, the tripartite free trade area8 (TFTA) is expected to come into force soon, possibly contributing its share to the spaghetti bowl.
Until a deep and wide integration comes into existence the questions remains, given the many RECs and also the many rather failed regional integrations among them, what dimension of regionalism is more important: the deepening or the widening? The continent provides several cases to study, and the benefits of regional integration should, therefore, be measurable in economic terms, namely: intra-regional trade, extra-intra-regional trade, and FDI. Mainly intra-intra-regional trade is expected to increase according to classic economic theory. Moreover, new regionalism suggests that external factors are essential to regional integration in the global south; meaning that trade between the RECs and the rest of the world is key, as well as FDI. The former should be observable in negotiated trade agreements, the latter in an increased FDI stock. The European Union (EU) is one of the most important partner for the African continent when it comes to trade and FDI (European Commission, 2020) .
Theories of regionalism often do not accommodate data or evidence on trade and FDI but focus on joint institutions and political cooperation (Söderbaum, 2007). Surely those theories acknowledge that there is an economic “sphere” to regionalism. However, they prioritise political aspects of regionalism, leaving a gap in research. Economic interconnectedness is key to regional integration as it poses an incentive to begin cooperation in the first place. Furthermore, through deepening, economic integration proves valuable for stability and economic efficiency, leading to economic development which is crucial in the global south.
Economic theories and economic academia are in contrast to research on regionalism conducted by political academica. Economists most often neglect the
7 AfCFTA is only provisionally in force since mid-2018 8 FTA between COMESA, EAC, and SADC
political sphere that comes with regional integration. Most research done in the field uses gravity model approaches or so to predict the growth of intra-regional trade or FDI. The underlying assumption of regional integration is that further integration will always lead to more intra-regional trade. Further deepening, though, is not always desired and not always possible due to failing negotiations. Additionally, economists assume that the bigger the size of the market, the more significant the impact on trade will be. However, this assumption neglects that the number of members negotiating and being part of a regional agreement also affects the potential impact a REC can have. Theories of new regionalism (Krapohl et al., 2014) accommodate the economic importance to a limited degree, as it is used more as an incentive for political action than a fundament of the regionalisation process. The theory on regional Rambo’s in particular argues that the economic benefit through external partners overweight in some cases the benefit of further integration. Hence, economic pay-offs are the incentives for taking action on further or less regional integration. At the centre of new regionalism is the importance of external factors for regional integration in the global south (Krapohl, 2017).
Bottom line, political analyses do not accommodate the economic importance of regionalism, and economic research ignores the obstacles of politics in the process. The deepening and the widening of REC in sub-Saharan Arica in the context of the current circumstances and its effects on economic integration is the subject of this thesis.
Given the puzzle that African RECs are unable to integrate deeply while hosting a large number of members, and thus tend to deepen integration only while being small, or enlarge their group while being shallow the question becomes: what "form" performs best. Which dimension of regionalism bears more benefits to the REC in form of FDI, intra- and extra- regional trade? There is a clear trade-off between both dimensions in Africa as there is limited success when both directions are being pursued. Nevertheless, it is unclear how this trade-off affects the three key variables; internal and external trade along with FDI.
2. Theoretical framework
The theoretical framework for this thesis is founded on political theories as well as economic ones. As displayed by the literature review, many scholars focus on just one of those aspects in their research and thereby neglect the importance that one has for the other. Regional integration must and can only be negotiated on a political level. The outcome of those negotiations, though, will have an economic impact as intra-regional trade, and in the context of the global south external influences in the form of FDI and trade, is at the core of regionalism (Krapohl, 2008). The framework will focus on the deepening and stability effects on RECs on the one hand, and on the widening dimension, on the other. After a brief introduction on the pillars or regionalism, trade theory in the context of regionalism will be elaborated. In the following section, the different levels of economic integration will be displayed, representing the deepening dimension above all. Afterwards, win-sets among different-sized groups are elaborated upon. In the two following sections, each dimension will be analysed in detail. Section 2.6 exposes external influences on a theoretical base. The last two sections visualise the trade-off along with the hypotheses and the research question.
Nye breaks down the concept of integration into three pillars: "economic integration (formation of a transnational economy), social integration (formation of a transnational society), and political integration (formation of transnational political interdependence)" (Nye, 1968: 858). All three pillars work hand in hand; in this thesis, the focus is on the first and the latter one. The former can be measured in intra-regional trade, to define to what extent the former economies are interlaced. The last pillar has high relevance for the analysis of external factors. In the case of extra-regional trade, political interdependence between member states will ease the access to international markets and facilitate negotiations, in the sense that a REC has more leverage in negotiating trade agreements. In respect to the attraction of FDI, the size of the REC has relevance, as well as the REC’s access to foreign markets. Mattli (1999) stresses the significance of market factors, as well as the role of institutional factors. Both will influence the outcome of integration and be crucial for its success.
2.1 Trade theory and “FDI attraction mechanism”
The economic part of this theoretical framework is based on classic international trade theory. In a nutshell, international trade theory explains why two entities trade across borders. The fundamental assumption is that trade will only take place if both parties benefit from it. Hence, through trade liberalisation, the government facilitates beneficial exchanges across borders. The theory of comparative advantage by Ricardo assumes that every country will produce the good in which it has the highest productivity compared to the other trading partner. The production of each good will thereby be more efficient. In total, more products will be available, and both countries can consume more of each good than they could before. This means that the countries would benefit from trade if each state could, therefore, specialise in the production of specific good in which they are comparatively more productive. However, it can be that one country has higher productivity in every sector. The aggregate firms of a country could still specialise in the production of the good in which it is much more productive compared to the other country, and therefore the total output would still be higher.
We, therefore, can expect trade creation when tariffs drop. Furthermore, by enlarging the market, economies of scope and scale will be achievable for some companies, reducing the costs of production even more and thus resulting in more trade between countries (Collier & Venables, 2008). Additionally, the increased efficiency of production and the bigger size of the market make a country more attractive to FDI as higher revenues can be expected, as well as increased international competitiveness, in respect to production.
The size of a country, measured as the gross domestic product (GDP), matters, as the bigger it is, the higher the economies of scale that can be achieved will be. If two large economies now agree to liberalise trade between them, the impact is even greater than when two smaller economies drop tariffs. This theoretical aspect is in favour of widening groups, as it will enlarge the market and increase economies of scale.
Moreover, the degree of liberalisation and interconnectedness between those two economies have a decisive influence on the volume traded between nations. Classic economic theory predicts that higher degrees of economic integration will facilitate
more trade. Hence, the economic benefits are at disposal here; if further integration provides economic benefits, integration will be pursued (Mattli & Stone Swett, 2012). In the context of the global south, external influences occupy a major role and due to the extra-regional benefits, might also have a more decisive influence on the process of integration if both interests are in conflict. This will be presented in detail in the section on new regionalism and external influences.
2.2 Economic theory of regional integration
The classification of the level of economic integration is essential for this thesis and will be explained in the following section in detail. The WTO (1995) classifies a free trade area (FTA) and a customs union, according to Article XXIV §8 of the GATT, as follows:
(a) A customs union shall be understood to mean the substitution of a single
customs territory for two or more customs territories, so that
(i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and,
(ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union;
(b) A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the
trade between the constituent territories in products originating in such territories.
Only those two levels of integration are relevant for the WTO, as those are the only ones concerning tariffs regarding third parties. The other levels of economic integration, their classification, and an overview are presented in increasing order in the table below. (Balassa, 2013: 2)
Free Trade Area Members remove trade barriers between each other. However, they keep their autonomy when it comes to trade barriers with non-member states.
Customs Union All members agree to a common tariff towards external partners in addition to free trade between their members.
Common Market Including the previous measures, all products, labour, and capital can move freely in the zone.
Economic and Monetary Union
A common monetary policy is implemented by a central authority. Additionally, some economic policies can be delegated to a central authority as well. This step of integration is some sort of “double step” as only one of both policy areas needs to be archived at the time. Both need to be completed though, in order to integrate further to the next level of regional integration.
Political Union A political union is perceived as the ultimate level of deepening. All policies will be initiated by a central authority, all national political institution will be submerged.
Figure 1: Levels of economic regional integration
This classification is based on economic benchmarks above all and can only be used as an estimate to determine the deepening of regional integration. Shared institutions or similar are not mentioned in economics, but contribute to stability within a region.
Moreover, according to the WTO regulation, it is quite simple to make a distinction between FTAs and CUs. The levels of integration, which are deeper than the customs union, are more tricky to distinguish. Typically, with liberalisation, transition
periods are negotiated, which means that the liberalisation will not come as an external shock but as a process over a few years or decades. Before establishing a monetary union, macroeconomic convergence between member states is needed. Time allows markets to accommodate to the new circumstances, creating some sort of hybrid forms of regional integration levels. In addition to the economic part of integration, RECs typically also cooperate in other policy domains such as education and health, among others.
In respect to international trade, regional integration allows member states to integrate into the world trading system step by step. Great openness to the world economy would expose the domestic economy to international competition and most likely have a negative impact on domestic industries. Especially in Africa, tariffs remained at a high level over years as they were a main source of revenue for governments. However, it is not possible to increase openness in order to attract foreign trade and investments while maintaining tariffs.
2.3 Win-Sets - political and economic approach
Negotiations for regional agreements can be challenging to conduct. State leaders will have to accommodate the interests of their constituencies, as well as the ones of their negotiation partner while bargaining. On an international level, negotiators will face difficulties when the counterparty is aware of the importance that a potential agreement can have for the other party.9 Thus, they might block negotiations or delay them until a compromise is found from which both parties can profit. The profit of both parties does not have to be equal, but it needs to respect the interest of the constituents of the negotiators at a national level, so-called "win-sets". This means that results at an international level can only be achieved if they are also accepted at the national level. At the national level, ratification poses a barrier to all international agreements. In theory, that barrier should be easy to overcome, as international agreements have national interest incorporated. Occasionally, ratification processes delay the implementation of treaties. (Putnam, 1988)
Especially in politically rather unstable regions, such as sub-Saharan Africa, ratification might delay and hinder international cooperation. Game theoretical approaches suggest that it is less likely that parties defect international cooperation if they assume to re-enter negotiations in the future (Putnam, 1988). This implies, in the context of this thesis, that RECs will have it easier to deepen regional integration and cooperation, from the point on where the REC was founded as future cooperation is very likely. In contrast, widening a REC will prove more difficult as potential new members are more likely to defect, as re-entering negotiations is not a necessity. If a nation defects, it does not fear any direct consequences as the status quo will remain. Therefore, accession negotiations can prove difficult. The widening dimension of the model is affected by this, as widening an existing REC is subject to the aforementioned complication.
However, a bigger group of negotiating parties will complicate negotiations as the overlapping win-sets get smaller. Hence, small RECs will tend to integrate deeper while big RECs might stagnate in the integration process as interests diverge.
2.4 The widening
Overall, the widening provides positive benefits in theory, as it will enlarge the market from an economic perspective and allow economies of scale and scope. An increased amount of members though also causes difficulties. Bargaining among many members can lead to slow and unproductive negotiations, resulting in stagnation of the regional integration process. Olson’s (1971) logic of collective action stresses that big groups will be too uncoordinated and have too divergent interests to find a beneficial solution. Buchanan (1965) expands on this approach by arguing that the scale of a club organisation depends on the benefits to its members in relation to the cost of organisation. In other words, if the addition of a member to a REC does not provide any benefits, the new member should not be added. This dynamic is quite relevant to this thesis as bigger RECs, in terms of members, will be confronted with the problem of marginal gains when it comes to further integration.
The opposite is valid for smaller RECs, as the benefits of further integration, as well as the costs of negotiating them, will prove to be simpler and cheaper. Whether this is actually the case is questionable. What seems clear though, is that smaller RECs will have it easier to deepen their integration. In contrast, bigger RECs will prefer to welcome new members as on the one hand, the level of integration tends to be low; therefore, the entry barriers into an existing REC are low as well. On the other hand, the benefits of widening can be marginal, thus barely beneficial, if it is not two or more, similar-sized RECs that are merging.
Moreover, the demand for positive integration is driven by economic actors. Those will demand new regulation and deeper integration that facilitate cross-border trade and capital flows within the region. In theory the interest in deeper integration is positively correlated to the amount of cross-border transactions (Krapohl, 2017: 34). Thus, deeper integration strongly correlates with intra-regional transactions, whereas widening is driven by extra-regional interests. Once a certain level of integration, in which the external influence cannot profit any more through deepening, is reached, there is no more incentive to integrate. Such level would most likely be a customs union, as further integration barely provides more benefits to external powers. A particular case though could be pegged currencies, as through stable exchange rates, cross-border transactions become less speculative. Especially, producers and "consumers of tradable goods, […] as well as internationally active investors, are all apt to be favoured by currency arrangements that maximise the stability and predictability of exchange rates."(Cohen, 1997: 66).
Whether this new regulation is actually supplied by the governing authorities is due to be investigated individually. The desired positive effects by economic actors strongly depend on the quality and compliance of new legislation. "Leaders may not see the need to pursue deeper integration if expected marginal gains from further integration are minimal, given the cost in terms of forgone autonomy." (Mattli & Stone Swett, 2012: 6)
2.5 The stability effects
Deepening integration leads to the loss of autonomy of a nation while increasing the stability of the region. Every step of deeper integration demands the delegation of political competences to a central authority. The autonomy loss of an FTA, for example, is much lower than the one of a customs union. In the former, a member state only agrees to remove trade barriers towards other members. In the latter, though, the member state loses complete autonomy over its external tariff. Above all, regionalism "symbolises a commitment to rationalised cooperation along sectoral lines and to peaceful relations" (Jetschke & Lenz, 2013: 631).
International trade and economic interdependence also have an essential role when it comes to conflict prevention between states. The trading nations are dependent on each other for a share of their economic activity (Morrow, 1999). As intra-regional trade is low in Africa, that cannot be the only incentive to cooperate. The member states are also dependent on each other when it comes to international negotiations, as well as international trade. Furthermore, a conflict in a geographically adjacent state can also cause disruptions on the national economy. Hence, the nations have an incentive to monitor and signal potential conflicts in order to prevent them and find peaceful settlements (Gartzke & Li, 2003). All member states profit from such an approach by preventing negative externalities. Regular meetings of high-level officials as well as the scope of economic activity between member states “are indeed conducive to a peaceful resolution of disputes” (Haftel, 2007: 233).
Regional integration can be understood as a mechanism that ensures both – regular meetings and economic interconnectedness – and creates conditions for cooperation that provide gains to member states when used. Deeper integration levels, in this respect, provide more common policy areas that demand collaboration and thus reinforce stability within that region. Bottom line, regional integration provides better conditions for dispute resolution.
States also “use regional organisations to ‘lock in’ democratic developments through deeper forms of regional cooperation and integration, entailing judicial litigation and sanctioning mechanisms" (Börzel, 2016: 50). The commitment to a REC also serves national leaders to legitimise their regime (Hartmann, 2016). Additionally,
those strings also imply obligations for successors and constrict the possibility of exercising power (Mansfield & Milner, 1999: 611). Furthermore, those regional boundaries have a signalling role towards external partners. States commit publicly to institutions and devote themselves to a judicial framework which signals the conditions of trade and investment. Thereupon, international investors and merchants perceive a region as more stable. (Börzel, 2016; Mansfield & Solingen, 2010)
The underlying assumption and eventually, the goal of regional cooperation is "the maintenance of secure access to global markets, capital, investments and technology" (Mansfield & Solingen, 2010: 153). Thus, deepening integration can be understood as an effort to communicate that will, as well as ensuring a framework that allows it. Investors will recognise this as a favourable investment climate. Furthermore, every level of deepening regional cooperation is another commitment and security towards external stakeholder to ensure stability in the region. Especially with respect to investments, a reduction of policy uncertainty, and thus increased stability is likely to bring higher pay-offs (Rodrik, 1989: 20).
Krasner (1976: 321) stresses that openness will affect social stability negatively; the effect is even more substantial in less developed countries. Thus, in order to get access to the world market, while prudently adjusting domestic industries to international competition, integration is an instrument implying a compromise between both goals. On the one hand, opening the economy to neighbouring countries will allow economic development and thereby attract external economic benefits. The possible negative impact through competitions remains moderate, as partner nations also have the possibility to negotiate compensations for negative effects. On the other hand, a moderate opening will not put domestic social stability at risk, and thereby reinforces economic attractiveness towards external partners.
The various levels of regional integration though only provide stability and benefits to members when the applied framework and policies are shaped in a way that increases welfare. Yi (1996) points out that customs unions can be a building block, as well as a stepping stone for welfare increasing regionalism. In Yi’s limited model, exclusive to custom unions, open regionalism proves to have a positive impact. Non-members might suffer from negative effects caused by trade and investment diversions. Hence, the non-member would risk political instabilities due to a
temporary economic downturn and might try to join the existing customs union, or create an alternative customs union with other states to internalise and thus neutralize any negative effects. Even though the last argument might imply widening as a viable strategy for RECs, it also emphasises the central role stability has in regionalism. Monetary unions, or similar regimes such as pegged currencies, provide a much deeper form of stability. Through fixed, or highly stable exchange rates, uncertainties for cross-border capital flows are reduced (Mansfield & Solingen, 2010: 154). Finally, stability is a necessity for RECs to become a collectively stable region with a favourable economic climate in order to attract and keep external partners, which they rely for economic development.
2.6 External & internal influences - New regionalism approach
The agenda of new regionalism is, in a nutshell, defined as analysing the external influences on regional integration. The idea is that regional economic communities are forming in order to gain relevance and thereby bargaining power for international negotiations. As briefly mentioned above, extra-regional gains through trade, as well as FDI overweigh the economic benefits of intra-regional trade in the case of the global south. Hence, new regionalism is vital as a method of approach for this thesis. (Krapohl, 2017: 34)
Three cases of external influence are relevant for this thesis: 1) the case of a regional superpower blocking integration, 2) the diminishing influence of a Rambo in the case of very wide RECs, and 3) the effect of the formation of a REC on non-members.
The scenario for the cases is the following: there is a limited amount of external benefits that are at disposal, meaning a limited demand for exports and a limited supply of FDI. This scarcity creates a rivalry between states in order to secure most of those potential gains. In 1), a regional superpower such as South Africa is in the case of SACU, might have a stronger interest in cooperating with external partners than with other REC members, if the interests are in conflict, as the external benefits might predominate the local ones. The so-called regional Rambo has an interest in adopting
otherwise would have been allocated to every member state. It is a tragedy of the commons situation. Hence, external influences can have a negative impact on regional integration. (Krapohl et al., 2014; Krapohl & Van Huut, 2019)
The second case is strongly related to the first. The power that a regional Rambo has only depends on its relative size in comparison to the REC. Hence, the bigger the group, the lower the power of a regional Rambo and the smaller its incentive to defect as well (Krapohl et al., 2014). The widening of RECs thus helps reducing the power of a potential regional Rambo. REC members will decide to widen the group, as long as the pay-offs provided through the external power, in the case of enlargement, are greater than the loss caused by a potential defection of the Rambo. If the Rambo then loses interest in being a member of the group, as the pay-offs for itself will decrease through every additional member, the REC is not destabilised by its now reduced amount membership. Hence, the widening of RECs provides more stability to its members, then deeper integration might, in the case of a potential presence of a Rambo.
In the last case, the scenario is that a non-member might suffer from trade and FDI diversion due to the formation of a REC, it is also tragedy of the commons situation, as explained above. The non-member has two options to overcome the status quo. Joining the existing REC would require the current members to grant access, which they would only admit if economic and/or political gains through this new alliance can be expected (Baldwin, 1993). In contrast, it could also be the case that the non-member, depending on its size, causes negative externalities to the REC. Hence, the REC would have an incentive to incorporate the non-member in order to reduce the externalities and profit. It is also possible that the non-member initiates a competing REC. Over time, and with growth of the latter REC, a fusion of both RECs could become beneficial. Concluding, the widening aspect of regional integration provides many cases of beneficial cooperation. (Mattli & Stone Sweet, 2012)
2.7 The model & the trade-off between deepening and widening
Concluding, the theoretical framework can be summarised with two parameters: the deepening and the widening of RECs. Both have an economic and political dimension to it. Overall the framework can be illustrated with the following graph, the deepening parameter implying stability is illustrated on the Y-axis, the X-axis classifies the widening. The communities are arranged based on their economic integration and size. Social and political integration, as well as transit phases between two integration levels are accommodated by flexible placement on the Y-axis. The widening parameter is defined by the current aggregated GDP of all members, as well as the number of members that a REC currently holds. The green line visualises the trade-off.
Figure 2: The trade-off model (Data: World Bank, own illustration)10
In addition to the investigated cases that are described in detail in the following section, the model also contains the UEMOA, WAMZ, AfCFTA, and TFTA11. The former two are monetary unions that are encompassed within the economic community of
10 See annex A for table with the indicators. 11 See the abbreviation list for the full names.
West African States (ECOWAS). ECOWAS itself is disregarded as it according to some sources, trade between the two groups is not liberalised yet.12 However, the United Nations Economic Commission for Africa classifies ECOWAS as a customs union (UNECA, 2017). The economic community of Central African States (ECCAS) is classified as a free trade area in the same report, yet many sources point out that the signed agreements are poorly enforced, thus ECCAS is not included either (Can & Maigari, 2019).
The investigated cases prove a trade-off between deep and wide integration, illustrated with the green line. Highly integrated RECs tend to have only a few members while low integrated RECs favour a higher amount of members. A detailed analysis of the four cases, in the case study section of this thesis, will clarify the benefits of widening or deepening. In respects to the AfCFTA, while widening seems to be the right strategy to attract foreign investments, the effects on intra-regional trade though are questionable. Ultimately, FDIs might prove more valuable for economic development in Africa than trade enhancing policies.
2.8 Research question and hypotheses
Dependent Variables: Intra-regional trade, extra-regional trade, FDI Independent Variable: Regional integration
What dimension (as in widening or deepening) of regional integration proves more important in sub-Saharan Africa and which recommendations follow for the AfCFTA?
H1: Small RECs commit to deep integration in order to negotiate extra-regional trade agreements.
12 Both monetary unions (UEMOA and WAMZ) are placed in the model. According to UNECA (2015)
tariffs are relatively high (5,6%) within ECOWAS. This mix of deep integration while maintaining tariffs makes ECOWAS an unsuitable case.
H2: Large and shallow integrated RECs attract more FDI as their large markets allow economies of scales.
H3: Intra-regional trade is boosted by deep regional integration.
H4: The stability effects resulting through deep integration attract FDI.
3. Data & case selection
For this thesis, a mixed-method approach is used. Trade, FDI and GDP data will be used for the quantitative analysis. The current state of the different RECs in terms of institutional design (such as tariffs) will be subject to qualitative analysis. The research is based on a most similar cases design with only two parameters changing: the deepening and the widening.
In the following subsections, the sources of the data along with a detailed explanation of its provenance will be explained, as much "patchworking" to the original data set, had to be done. Thereafter, the case selection will be justified, including a brief presentation of each REC. In respect to extra-regional trade, mostly EU related trade relations will be analysed. The EU is the most important trade partner for the African continent and has been proactive in negotiating trade agreements since the early 2000s (Nowak, 2017).
Intra-regional trade is calculated as the sum of regional imports plus regional exports, divided by the sum of total exports plus imports to the world. This method of measurement allows to 1) display the level of interconnectedness between the members of a REC while 2) putting it in perspective to the total trade flows. In contrast to methods where trade is put in relation to GDP, this method focuses on comparing the importance of one to the other.
In general, the available data for African countries is among scholars of that field known to be scarce and challenging to obtain. Further, the export statistics rarely line up exactly with the import statistics of a partner and are quite volatile. The former issue
has various reasons such as differing trade systems, variations in quantity measurement, transportation and insurance costs, and so on. The latter is due to the fact that many investigated countries are small, vulnerable, and on natural resources focused economies. As a consequence, the data on trade and GDP, but also on FDI is very volatile but allows in the context of this research to identify trends and patterns.
Most of the data on trade is sourced from the International Trade Centre (ITC). The ITC is a joint agency of the World Trade Organisation and the United Nations. The data is mostly based on UN-COMTRADE and complemented by national sources. The ITC’s platform13 offers the possibility to extract aggregated trade data for the RECs investigated in this thesis. Those, however, were not complete for all years. Hence, the missing values have been sourced separately from UN-COMTRADE, World Bank, UN Conference on Trade and Development (UNCTAD), the COMESA Data Hub (COMSTAT), and national central banks in some cases.
3.1 Data on trade
The data on SACU was not complete and demanded extensive additional research. The data on exports and imports to the world were missing for the period between 2004 and 2006. The respective central banks published this data in the local currency though. Hence, the exports for the above mentioned period were converted into US Dollars with the average exchange rate for the respective year. As the currency of Lesotho (Loti) is quite vulnerable to inflation, the data might not be extremely accurate. With regard to the fact that the two million habitant monarchy has a rather small economy, any deviation in the data should not influence my results. The data on Eswatini for the years 2008 until 2010 was also missing in the main data set but available at UN-COMTRADE.
All import and export data for intra-regional SACU trade for South Africa was missing for the period between 2001 and 2010. Surprisingly, this data is not available anywhere, and the ITC was upon inquiry not able to explain the missing values either.
Hence, all intra-regional trade data in this period is mirrored. Namibia’s declared imports from South Africa, become South Africa’s exports to Namibia, and so on. The mirrored data is sourced by the ITC or UN-COMTRADE database with one exception: data for trade between Lesotho and South Africa is not available for the period between 2005 and 2008. To overcome these gaps, the average of the data of 2003, 2004, 2008, and 2009 is used.
EAC data is overall complete and solid. Nonetheless, the data is quite volatile in some cases. South Sudan only joined EAC in 2016; hence there is a peak in every growth rate presented on EAC in this thesis for that year. The other peak is driven by Kenya who, as the largest economy in EAC, managed to increase their imports from 3,12 billion US Dollar to 3,97 and their exports from 2,11 to 2,91 billion US Dollar between 2002 and 2003. This might be due to the election of Mwai Kibaki in 2002, who was an esteemed economist and put in place various economic growth-oriented policies.
In the case of COMESA, the data on intra-regional trade is a mix of direct and mirrored data, sourced by the ITC. Data on trade with the rest of the world demanded further research in order to be completed. In the case of Djibouti (2001 until 2008), Eritrea (2001 and 2002), Sudan (2007), and Zimbabwe (2003) additional data was sourced from the Observatory of Economic Complexity (OEC) which displays UN-COMTRADE as its primary source. In the other cases; Comoros (2006), Eswatini (2008 until 2010), and Seychelles (2007 and 2009) the missing values were available at the UN-COMTRADE database directly. Overall the data is quite volatile, which is due to Egypt an Libya’s economy that, combined, account for more than half of COMESA’s GDP. Especially Libya exports primarily oil, hence the volatility of the oil price converts into the volatility in the trade and GDP data.
Somewhat similar to COMESA is SADC when it comes to the availability of the data. Intra-regional trade data is mostly a mix of direct and mirrored values. International trade, as in trade with the rest of the world, had to be filled up. In the cases of Eswatini (2008 until 2010) and Seychelles (2007 and 2009), UN-COMTRADE provides the missing values. In the case of Lesotho, as mentioned above in the section on SACU, central bank data is used. Additionally, the data for Angola (2001 until 2003 and 2008), as well as Zimbabwe (2003) were sourced from the OEC. As in the case of
COMESA, the data is quite volatile, which is also due to natural resource focused economies. Angola almost solely exports oil (over 90% of all exports) and Zimbabwe mainly aluminium. Hence, the world price volatility of those goods ended up doubling or halving the GDP within a concise period of time.
3.2 Data on GDP
In general, the data on GDP is available and complete at the World Bank database with few exceptions. In the case of EAC the data for South Sudan for the period from 2016 onwards was missing and substituted by data from the United Nations Conference on Trade and Development (UNCTAD). The same is the case for Eritrea from 2012 onwards. Overall, the data displays some volatility due to highly undistributed economic sizes within the single RECs. As an example, Egypt makes around 35% of COMESA’s GDP.
3.3 Data on FDI
The data on FDI inflows and stocks originates from the World Bank. The data is complete with the exception of Burundi (2002 and 2003), Sudan (until 2011), and South Sudan (no data available), as well as Libya (2011 and from 2014 onwards). In all four cases, the missing data is due to political conflicts. In general, we can assume though that no significant amount of investment would flow into countries that are unstable. The missing data will, therefore, be treated as null. Moreover, the data is quite volatile, which is due to its nature. Unlike trade patterns that take years to develop and then usually persist, an investment is made once, and there is no direct need to reinvest even more in the following years. The highly volatile FDI inflow data is difficult to interpret. FDI stock data is used in some cases, or 3-years weighted averages are calculated in order to flatten the curve. Weighted averages are calculated based on the following calculus: the previous and the following year is respectively weighted with the factor 0,5 while the specified year is weighted with one, the total is then divided by two.
3.4 Data on greenfield FDI
Greenfield FDIs are an important indicator, as they promise economic development.14 Surprisingly the data set on greenfield investments is the most complete one. It is provided by UNCTAD in cooperation with “FDI markets of Financial times”. Through their news network, data on announced greenfield FDI projects is collected (UNCTAD, 2017).15
3.5 Institutional developments
To the current state of the respective REC “tralac” offers fact sheets. Tralac is a public benefit organisation based in South Africa since 2002. It is listed as a public benefit organisation and is funded by the Swiss government, among others. The trade law centre supports various stakeholders that are affected by regional integration in Eastern and Southern Africa. The United Nation's Economic Commission for Africa (UNECA) provides insight into the current situation of the RECs. Furthermore, each REC has a website with information and press briefings. Whether these planned and publicly announced measures and steps of integration are effective though is often unclear. African scholars, though, often make use of their personal network to gather information. The information disclosed by the respective RECs is rarely detailed. Hence, to determine the current state of regional integration in different periods is challenging and demands extensive research. The initial agendas are often clear, their actual implementation schedules though not. This divergence also offers insights on the institutional functioning of the RECs. This will be taken into account for this analysis.
14 Greenfield FDI is a type of investment where a company creates a new subsidiary in a foreign country.
Those investments are not mergers, and thus promise to support economic development in the foreign country more than other investments.
15 All data is available from 2003; in some cases, no data was displayed, which indicate a total FDI value
3.1 Case selection
Technically SACU, EAC, COMESA, SADC, ECCAS, ECOWAS, and the other pillars of the AU are all cases that suit my thesis. Some of them and the AfCFTA will also be treated at a low level to give some context to the rest of my analysis. However, due to the availability of data and the amount of data needed, the focus will be on only four cases in this thesis, namely SACU, EAC, SADC and COMESA. The four cases studies are selected, as they provide great contrast. SACU is highly integrated and has over 100 years of history, whereas EAC is a rather recent project of deep integration hosting a similar amount of members as SACU. SADC also has a rather long-standing background in contrast to COMESA. Both are very large groups with a low level of integration. The four cases provide differences in the deepening, as well as widening dimension of regionalism. Additionally, through their different history, insights on long term effects are demonstrable in the analysis.
In the following sections, each will be presented. The tripartite agreement between COMESA, EAC, and SADC is relevant for this analysis as well, as it presents a clear case of widening. As of February 2020, only eight of the 27 member states have ratified the agreement; once six other countries get the ratification through, TFTA will come into force (tralac, 2020). Hence, no data is available yet on the effect of the free trade area. The negotiations partners engaged in negotiations in 2008, supporting the argument presented earlier in the theoretical section that an increased number of involved parties will lengthen negotiations.
3.1.1 SACU
The Southern African Customs Union (SACU) is one of the oldest of its kind and dates back to colonial times (1910). The agreement between the states has been renewed various times since its inception so that the colonial background of the institution can be ignored to a certain extent. In 2002, the SACU agreement was updated to the most recent state, providing greater representation of member nations while decreasing South Africa’s predominance (Gibb & Treasure, 2011). Overall, the update was meant to boost the democratic credibility of SACU as an institution.
