Trade, remittances driving sub-Saharan integration – IMF

Integration between the economies of sub-Saharan Africa has increased most substantially through trade and remittances as a result of reduction in tariffs, stronger institutions and policy relative to the past, according to the International Monetary Fund (IMF) in a blog post Wednesday.

“Contrary to popular belief, countries in sub-Saharan Africa are more closely tied than ever, thanks to rising trade with one another and remittances—the money people send home when working in another country,” the Bretton Woods institution stated.

It said in 1980, regional exports were equal to only 6 percent of total exports, but by 2016 they had risen to 20 percent, making the extent of regional integration in sub-Saharan Africa as high as in any other emerging and developing region in the world.

“This is the result of the region’s higher growth relative to the world, the reduction of tariffs, and stronger institutions and economic policy, relative to the past, throughout the continent,” it stated.

The IMF finds trade to be the strongest conduit when it comes to the impact on growth.

“We estimate that a 1 percent increase in the weighted growth rate of intra-regional partners is associated with an increase of 0.11 in domestic growth,” the blog post indicated.

The IMF indicated that the largest economies in the region, like Nigeria and South Africa, which currently have sluggish and slow growth, impact the countries most exposed to them through reduced demand for traded goods and a reduction in remittance flows.

Conversely, fast-growing economies, like Côte d’Ivoire and Kenya, buoy other West and East African economies respectively with higher growth from increased demand for traded goods and larger remittance inflows.

In a bid to boost integration further, the IMF noted that sub-Saharan integration has caught up to other emerging and developing regions’ levels, but enormous potential remains for further improvements, especially between sub-regions.

The Fund advised that countries can reduce tariff and non-tariff barriers, such as reducing administrative burdens and improving the ease of doing business, including broad ratification and implementation of the African Continental Free Trade Agreement.

It also prescribed prioritising infrastructure development, for countries who have room in their budgets, to make trade easier between countries and between sub-regions.

To deal with the increased risks raised by closer ties, the IMF said, “countries can also diversify their economies through structural transformation and the diversification of exports, while building on their comparative advantage.

“Ensure policies are in place to monitor and regulate, where necessary, cross border trade of goods and services, including effective and efficient customs and border procedures,” adding that over the next few years, greater integration in the African continent, including leveraging the continental free trade agreement, is a welcome sign of development.

“It means a broader base for business to expand and more employment opportunities for workers. Through these channels, integration has the potential to significantly raise medium-term growth, foster stability, and reduce debt sustainability concerns for many countries.

The region is playing more collectively, which means greater chances to win at growing all their economies,” the IMF said.