Integrating Africa: Creating the next global market

Executive summary

The vision of the Bank Group is for a stable, integrated and prospering continent of competitive, diversified and sustainably growing economies participating fully in global trade and investment. The objective is to foster regional and economic integration on the continent by increasing the effectiveness of Bank Group support to Regional Member Countries, regional organizations and the private sector.

This Regional Integration Policy and Strategy for 2014-2023 is the blueprint for the Bank’s long-term support to Africa’s economic integration. It builds on the experiences of the Bank and other development partners in implementing regional integration programs. Anchored on the Bank’s Ten Year Strategy for 2013-22, it reflects the continent’s priorities as expressed in the many integration initiatives. Furthermore it distills current thinking on the economics of integration coming from the Bank, other multilateral development banks, the African Union Commission, the Economic Commission for Africa as well as think tanks, researchers and academics.

Regional economic integration aims to create larger, more attractive markets, link landlocked countries to international markets and support intra-African trade. Thus, the Bank’s strategy is anchored on two mutually reinforcing pillars: the first is supporting regional infrastructure development, and the second, enhancing industrialization and trade. Implementation will be aided by a cross-cutting pillar: strengthening country and regional mechanisms and institutional capacities.

To promote inclusive growth and a transition to green growth under this strategy, the Bank will tackle key constraints to boosting intra-African trade and investment, increasing the continent’s participation in regional and global value chains, supporting value addition and job creation, and using technology to develop cleaner infrastructure. It will use its knowledge instruments, technical assistance and role as a strategic partner and catalytic financier to promote economic inclusiveness, including that of countries in fragile situations, small and micro enterprises, women and youth. The Bank will also pay attention to promoting green growth, protecting the environment and managing knowledge.

New resource discoveries, such as oil, gas and coal in Eastern and Western Africa, present opportunities for investment. Technology-driven opportunities in agriculture can support regional value chains, attract foreign investment and boost output, as seen in the rising importance of Chinese and Indian investments. Increasing the diversity of investment sources offers chances to develop the continent’s natural resources, infrastructure and value chains. Moreover, Africa’s current demographics are set to make the continent home to the world’s youngest population by 2040 – that, allied with pertinent skills and an enabling business environment, presents a potential youth dividend. The Bank will leverage its Human Capital Strategy for Africa (2014-2018) to build skills for better jobs, equal opportunities and competitiveness. Moreover an expanding middle class, now put at 355 million, raises Africa’s profile both as a market and a destination for investment.

But only regional integration will help create larger markets that are attractive to the investment and trade, critical for generating sustained growth, creating jobs and transitioning to inclusive growth.

Cooperation arrangements through the RECs are expected to foster Africa’s integration. Recent regional infrastructure and trade-related initiatives and various regional infrastructure master plans provide an added impetus for a more coherent approach to integration. And at the national level, macroeconomic stability and robust growth, partly reflecting economic and governance reforms, have enhanced the potential to attract foreign investments.

The new policy will be implemented through Regional Integration Strategy Papers and Country Strategy Papers. Bank support to regional infrastructure development is to be guided by continental and regional priorities, especially the Program for Infrastructure Development in Africa’s Priority Action Plan, and will focus on design, implementation and maintenance activities. The Bank will promote public-private partnerships in infrastructure development – from planning, design, preparation and construction to operations, management and monitoring. That will help ease financial burdens on governments in regional infrastructure, offer expertise and ensure that infrastructure functions effectively. The Bank will in parallel encourage countries to adopt frameworks and international principles to guide private sector participation in infrastructure. Indeed, one objective of the Strategy is to stimulate private interest, both domestic and foreign, in regional projects, thus boosting private investment.

The Bank will thus leverage its strategies for regional integration, private sector development and financial sector development to support regional and national mechanisms and programs to attract foreign investors, particularly into regional infrastructure, industries and other trade-development investments. It will support building capacity to implement current regional investment agreements and ensure their alignment with bilateral investment agreements among RMCs. It will support the harmonization of financial governance and standards by leveraging partnership with the Bretton Woods Institutions and the African Peer Review Mechanism. To develop regional financial markets, it will support programs to link national capital markets and develop regional capital markets. The Bank will support the African Financial Markets Initiative and support the strengthening of national payments systems to meet international standards and harmonize them regionally.

The Bank will also support trade facilitation measures, including before and after the border issues, one-stop border posts, coordinated border management and customs reform and modernization. It will tackle nontariff measures along transport corridors and advocate for reforms within RECs and RMCs. It will develop a Transport and Trade Facilitation Framework and conduct related assessments to guide the design of transport infrastructure projects to facilitate trade. And it will provide catalytic financing, technical assistance and training to address priorities identified in the WTO Trade Facilitation Agreement.

Alongside its transactional support, the Bank will boost the ability of indigenous financial institutions and development finance institutions to participate in trade finance and to intervene in SME markets. The Bank will also provide capacity building primarily for SMEs and their aggregators. It will also ensure that traditionally disadvantaged sectors – such as agricultural businesses, micro, small, and medium enterprises, and women-owned businesses – have equal access to trade finance.

The new strategy demands coordinated implementation throughout the Bank and with external partners. Internal implementation will be through a collaborative and decentralized approach, with ONRI providing strategic leadership and direction. The Bank will refine its guidelines for managing and monitoring regional integration. It will ensure that sector and thematic strategies and frameworks with regional dimensions are aligned with the Strategy and that the Strategy is reflected in the business plans of ONRI and other departments.

Operations will be designed and implemented by regional and sector departments, with ECON, OSHD and ONRI involved in technical assistance and capacity building (as well as knowledge management and knowledge-based advocacy). All departments will be involved in dialogue through their activities, but ERCD, ONRI and the field offices will be the most involved in strategic communication with stakeholders. The Africa Legal Facility will provide capacity building and advisory legal support to regional infrastructure and extractive industry projects.

ONRI will provide leadership as regional integration becomes mainstreamed across the Bank, and its role in regional operations will expand beyond setting priorities and arbitrating among sectors. It will coordinate and sequence sector department inputs, while leading the preparation of RISPs with regional and sector departments. It will also ensure that regional dimensions are defined at entry in national projects. An appropriate mechanism will be put in place to facilitate this.

The Bank will deploy its full range of financing and technical assistance instruments to support the Regional Integration Policy and Strategy for 2014-23. RISPs and CSPs are the main programming instruments for regional and country operations. The Bank will aim for even greater alignment between CSPs and RISPs for regional operations. ONRI will lead the design of a new generation of RISPs after 2015 with sector and regional departments. It will also work with operations departments to develop guidelines for the RISPs to ensure that lessons from the midterm reviews of the current RISPs will inform future RISPs.