Why regional integration is so important for resource-driven diversification in Africa

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Industrial area in Kitwe, Zambia / Photo: Arne Hoel


Natural resources management, particularly in the extractives industry, can make a meaningful contribution to a country’s economic growth when it leads to linkages to the broader economy. To maximize the economic benefits of extractives, the sector needs to broaden its use of non-mining goods and services and policymakers need to ensure that the sectors infrastructure needs are closely aligned with those of the country’s development plans.

In Africa, especially, mining and other companies that handle natural resources traditionally provide their own power, railways, roads, and services to run their operations. This “enclave” approach to infrastructure development is not always aligned with national infrastructure development plans.

In a continent facing massive infrastructure needs, African countries can thus miss out on opportunities to promote the shared use of infrastructure and to strengthen the linkages between extractive resources and the broader economy. Non-mining businesses like farms or food traders in sparsely populated or remote areas, for example, would benefit from shared infrastructure, since railways, roads and electricity are all needed to bring goods to markets.

Regional integration is often seen as less relevant for resource-rich countries, since demand for commodities typically comes from the global market rather than from regional demand. Regional integration in Africa, however, can play a vital role in diversifying economies away from dependence on the export of just a few mineral products; in delivering food and energy security; in generating jobs for the increasing number of young people; and in alleviating poverty and delivering shared prosperity.

The relationship between resources, regional integration and diversification is twofold.

First: Since resource deposits don’t always fit neatly inside the borders of individual countries and tend to span multiple borders (including landlocked countries), trans-boundary mining transport will need to be built to extract and transport the resources. That often has implications for regional integration. Global experience shows that the development of such infrastructure requires strong cooperation and coordination among all parties involved, along with a legal and regulatory environment that allows for the shared use along that infrastructure. Designing and building such infrastructure and a regulatory environment in a multi-country context is, however, very complex: It involves a wide range of political-economy issues that need to be addressed.

Second: Extractives can help diversify economies through linkages to the broader economy. Regional value chains in minerals and metals, for example, will create demand for services and goods that feed in to that value chain. Regional integration is essential here as well, since goods, services and people need to be able to flow seamlessly across borders to reduce costs and to help firms become competitive enough to link to these value chains. The deeper integration of regional markets through the elimination of non-tariff barriers can reduce trade and operating costs. It can also ease the constraints faced by many firms in gaining access not only to demand for their products but also to the essential services and skills that they need as to boost productivity and diversify into higher-value-added areas.

Deepening regional integration among African economies, therefore, provides both opportunities and challenges to the sound management of extractive resources and translating wealth from these resources in to diversified economies and equitable growth. Our recent report, “Breaking out of Enclaves
Leveraging Opportunities from Regional Integration in Africa to Promote Resource-Driven Diversification
” explores this nexus of extractive resources, regional integration, and economic diversification.

The report looks at how regional approaches can increase the local employment and production effects of extractive-resources projects and discusses some of the regulatory, institutional, and political economy barriers facing African policymakers in achieving regional cooperation.

The analysis is based on three case studies of efforts to create trans-boundary transport corridors anchored by extractive resources: The cases include the extraction of coal in the Nacala corridor in southern Africa; proposals for the exploitation of iron ore in Guinea and Liberia; and the LAPSSET corridor in East Africa that aims to ship oil and gas from South Sudan to ports on the Indian Ocean. These case studies encompass three different sub-regions that vary in their level of regional integration.  They are assessed through a framework that organizes the most important policy questions and leads to a number of concrete recommendations for national and regional policymakers.

Through our research and the recommendations provided in the report, we show that regional integration is still relevant for Africa’s resource-rich countries – and that it is more crucial than ever before for diversifying countries’ economies as the global commodity supercycle comes to an end.

Authors

Gözde Isik

Senior Transport Economist

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halis ışık
March 16, 2016

well done