EN

|| COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 6.10.2008

SEC(2008) 2539/2

CORRIGENDUM Annule et remplace le document SEC(2008)2539 du 1.10.2008 Référence ajoutée dans la footnote 16

COMMISSION STAFF WORKING DOCUMENT

accompanying the Communication on Regional Integration FOR DEVELOPMENT in ACP Countries {COM(2008) 604} {SEC(2008) 2538}

TABLE OF CONTENTS

List of Acronyms. 4

1........... The relevance of regional integration in a globalised world. 7

1.1........ The global context 7

1.1.1..... The global economic context 7

1.1.2..... Increasing attention to regional integration. 8

1.2........ The increasing commitment of ACP countries to regional integration. 10

2........... The challenges facing regional integration in ACP countries. 12

2.1........ The economic structure. 12

2.1.1..... Dual economies, weak export base and insufficient complementarity. 12

2.1.2..... Vulnerability to economic and financial shocks. 14

2.2........ The need for (more effective) regional policies beyond trade. 14

2.3........ Inefficient and/or incomplete infrastructure networks. 16

2.4........ Weak regional governance. 17

3........... Why does the EU care?. 18

3.1........ EU-ACP relations and regional integration: an ancient partnership. 18

3.2........ More and better can be done. 21

3.2.1..... The need for a consolidated EU vision. 21

3.2.2..... Setting out the objectives. 22

4........... Three possible approaches for EU support 24

4.1........ Elimination of barriers to trade. 24

4.2........ Policy co-ordination and co-operation for sustainable development 26

4.2.1..... Reducing physical barriers through infrastructure networks. 27

4.2.2..... Strengthening interdependence by action at macro-economic and micro-economic level 28

4.2.3..... Management of common resources or challenges. 30

4.3........ Developing political co-operation for effective regional integration. 31

4.3.1..... Regional cooperation for peace and stability: 31

4.3.2..... Good governance as a regional good. 32

4.3.3..... Harnessing the effects of migration. 32

4.4........ Comparing the approaches. 32

4.4.1..... Overview of advantages and drawbacks. 32

4.4.2..... The contribution of different approaches to EU policy objectives. 40

4.4.3..... Finding the right mix. 41

5........... EDF support to regional integration: a mix of approaches. 42

5.1........ The 9th EDF regional programmes. 42

5.2........ The 10th EDF regional programmes. 44

5.3........ Exploiting the synergies for inter-regional cooperation. 45

5.4........ Design of regional integration and EU support 46

5.5........ Risk factors. 47

Annex 1: Overview of regional integration in ACP regions. 50

Annex 2: Review of existing literature on regional integration in ACP. 64

Annex 3: Stocktaking of EPAs and regional integration. 67

Annex 4: EC financial support for regional integration. 70

Annex 5: Overview of 9th EDF regional programmes (2002-2007) 71

Annex 6: Evaluation of EDF Programmes. 74

Annex 7: References. 77

List of Acronyms

ACP || African, Caribbean and Pacific countries

APF || African Peace Facility

APRM || African Peer Review Mechanism

ASEAN || Association of South East Asian Nations

AU || African Union

CACM || Central American Common Market

CARICOM || Caribbean Community and Common Market

CEMAC || Communauté Économique et Monétaire de l'Afrique Centrale

CEPGL || Economic Community of the Great Lakes Countries

CET || Common External Tariff

CFA Franc || Communauté financière d'Afrique / Coopération financière en Afrique centrale Franc (currency)

COMESA || Common Market for Eastern and Southern Africa

CSME || Caribbean Single Market Economy

CSP || Country Strategy Paper

DRC || Democratic Republic of Congo

EAC || East African Community

EC || European Community/ies

ECCAS || Economic Community of Central African States

ECOWAS || Economic Community of West African States

EDF || European Development Fund

EIB || European Investment Bank

EPA || Economic Partnership Agreement

ERDF || European Regional Development Fund

FDI || Foreign direct investment

FTA || Free Trade Area

IfS || Instrument for Stability

IGAD || Intergovernmental Authority on Development

IOC || Indian Ocean Commission

IRCC || Inter-Regional Coordinating Committee

MDG || Millennium Development Goal

MERCOSUR || Mercado Común del Sur

MNC || Multi-National Corporation

NAFTA || North American Free Trade Association

NEPAD || New Partnership for Africa's Development

NIP || National Indicative Programme

OCT || Overseas Countries and Territories

OECS || Organisation of East Caribbean States

PICTA || Pacific Islands Countries Trade Agreement

PIF || Pacific Islands Forum

REC || Regional Economic Community

RIP || Regional Indicative Programme

RISP || Regional Indicative Strategic Development Paper

RSP || Regional Strategy Paper

SACU || Southern African Customs Union

SADC || Southern African Development Community

SME || Small and Medium Enterprises

SOPAC || South Pacific Applied Geosciences Commission

SPBEA || South Pacific Board of Educational Assessment

SPC || Secretariat for the Pacific Countries

SPREP || South Pacific Regional Environmental Programme

SPS || Sanitary and Phytosanitary standards

SPTO || South Pacific Tourism Organisation

TBT || Tariff barriers to trade

UDEAC || Union Douanière et Économique de l’Afrique Centrale

UEMOA || Union économique et monétaire ouest-africaine

UNCTAD || United Nations Conference on Trade and Development

USP || University of the South Pacific

1. The relevance of regional integration in a globalised world

1.1. The global context

1.1.1. The global economic context

Over the last decade, the globalisation process has gained further momentum, changing the global economic landscape and bringing the emergence of new economic powers such as China and India. Global trade and investment flows have grown much more rapidly than national economies, bringing about an unprecedented level of economic interdependence.

In an increasingly complex web of economic and political relations, economic interdependence has grown much more rapidly and deeper than the political cobweb. Not all actors – governmental or commercial – have been able to adapt and take advantage of the new course. In this respect, larger and stronger players have a significant advantage as they have retained (or gained) the ability not only to adapt to, but to actually shape, globalisation.

This explains why globalisation has tended to marginalise the smaller and weaker states and companies, thereby increasing inequalities – both within countries and between countries – between winners and losers. In this context, most ACP countries have not been in a position to harness globalisation to achieve their development objectives and, in particular, to accelerate poverty reduction. As shown in table 1 below, their share of world trade and investment has stagnated while developing countries at large have been reaping the benefits of globalisation.

Table 1: The position of developing countries and ACP countries in world trade and investment

Indicator || 1990 || 2006

Developing countries' share of world trade Sub Saharan African countries' share of world trade || 23.2% 2.9% || 34.7% 2.7 %

South-south share of world trade Sub Saharan African intra-regional trade as a share of world trade || 7.6% 0.1% || 17.0% 0.2%

Developing countries' share of FDI flows Sub Saharan African countries' share of FDI flows || 17.8% 0.8% || 29.1% 0.9%

Developing countries' share of FDI stock Sub Saharan African countries' share of FDI stock || 20.5% 2.0% || 26.3% 1.7%

Source: UNCTAD

This trend is not inevitable, as exemplified by the recent surge of growth rates in Africa. This accelerated growth is, however, based to a large extent on a commodity boom that needs to be translated into long-term development. In any case, at the current pace, ACP countries would need much time to catch up with the most developed economies. It is also widely recognised that additional growth is needed if developing countries are to meet the 2015 targets of the Millennium Development Goals (MDGs). Table 2 below shows clearly that sub-Saharan Africa is currently not on track to achieve any of these goals. Accelerated growth is, in particular, a necessary – if not sufficient – condition for the central objective of poverty reduction is to be achieved.

Table 2: The Millennium Development Goals and selected indicators for Sub-Saharan Africa.

Goal Sub-goal / indicator || Progress

1990 || 2004

1. Eradicate extreme poverty and hunger Halve the number of people living on less than $1 per day (1990 – 2015) Halve the proportion of people who suffer from hunger (1990 – 2015) Measured by the number of under 5s under age. || 46.8% 33% || 41.1% 29%

2. Achieve universal primary education Ensure all boys and girls complete a full primary school course (measured by enrolment rate) || 54% || 70%

3. Promote gender equality and empower women Measured by the share of women in single or lower houses of parliament || 7.2% || 16.5%

4. Reduce child mortality Reduce by two thirds the mortality rate under 5 || 185 per 1000 || 166 per 1000

5. Improve maternal health Reduce by ¾ the maternal mortality rate || 940 per 100 000 || 920 per 100 000 (2005)

6. Combat AIDS, Malaria and other diseases Halt and reverse the spread of aids (measured by prevalence of AIDS in 15-49 year olds) || 2% || 6%

7.Ensure environmental stability Reduce by half the proportion of people without access to basic sanitation || 68% || 63%

Source: United Nations

1.1.2. Increasing attention to regional integration

The recent proliferation in the number of regional integration projects and the focus on their importance can be attributed to the fact that regional integration provides a response to the challenges of globalisation. Smaller states find themselves in a weak position to attract global companies and to exert political influence an international level. Regional integration provides smaller states with recognition and weight and increases their ability to better harness the benefits and negative impacts of globalisation.

The EU itself is a prime example of this kind of response, where the internal market and common policies allow companies based in Europe to build up a strong regional economic base, while enabling Member States to pool their sovereignty to address common challenges in a cooperative manner.

While the concept of regional integration among developing countries has existed since the formation of SACU (Southern Africa Customs Union) in 1910, its rise in popularity began during the 1960s with the formation of organisations such as CACM (Central American Common Market) and ASEAN (Association of South East Asian Nations). More recently, regional integration has become one of the dominant features of international politics. The 1990s saw the emergence of new organisations such as MERCOSUR (Mercado Común del Sur – Southern Common Market) and the unique NAFTA (North American Free Trade Association), which joins developed countries (Canada and US) with a newly industrialised country (Mexico). Since the beginning of the 21st century, regional organisations have both expanded in membership and broadened co-operation areas.

ACP states did not stay out of this trend towards increased regionalisation. Across the ACP region, there are now some 20 regional integration arrangements and dozens of specialised regional cooperation organisations. Many of the ACP arrangements are focussing in the first place on achieving objectives relating to economic and trade aspects or cooperation

This attraction for regional integration can be easily understood and explained by the outcomes it is expected to bring in at least three areas (see also annex 2 for a review of the literature on the benefits of regional integration):

– Through cooperation and institutionalisation of conflict prevention and the peaceful conflict resolution, regional cooperation helps stabilisation. Regional organisations play an increasingly important role in conflict management, peace-keeping and peace-building. They can play an important role in helping to tackle the root causes of conflicts as well as promoting and protecting human rights, building trust and thereby enhancing understanding among societies and cultures leading to reconciliation in post-conflicts situations. By deepening interdependence, regional integration provides disincentives for countries or groups to act aggressively against neighbouring countries and populations.

– By building up larger markets, creating harmonised and effective frameworks for economic operators, fostering the exchange of goods and resources, regional integration can foster economic development through economies of scale and stimulation of investment. From an EU perspective, regional integration is a step towards integration into the global trading system by allowing efficiency gains through enlarged markets and an open regional integration. It is, in particular, a means to foster south-south trade in a context where many developing countries trade more with developed countries than with their neighbours. By being essential for economic growth, regional integration is therefore a vehicle for accelerated poverty reduction.

Box 1: Regional integration and growth Literature[1] on regional integration and growth generally does not find a direct link between the two, but rather an indirect association, or so called "dynamic growth effects". Te Velde (2008) completed a study of regional integration and growth in ACP regions, and found positive effects on growth through regional integration in trade and investment. In particular, "regional integration is likely to increase aggregate growth through the growth effects of increased trade and investment, and one supporting piece of evidence is that exporting firms have higher productivity". Schiff and Wang (2003) similarly found that NAFTA imports raised Mexican productivity by between 6.5 and 7.5%.

– Regional cooperation is also the best way to provide or protect "regional public goods" because it is more effective in addressing challenges with a trans-national dimension. Expected effects of regional cooperation are i) the provision of "regional governance public goods" such as international economic governance and regional institutional development; ii) the provision of "regional knowledge public goods" such as experience learning and information sharing; iii) overcoming "other market and coordination failures and coordinating activities with strong regional externalities" such as competitiveness challenges (ODI 2008). Typically, transmissible diseases and the fight against migratory pests, protection and management of natural resources (e.g. water, land) or migration are cross-border challenges that require cross-border cooperation if they are to be mitigated and if increased economic activity of a regional scale is to be sustainable.

Box 2: Regional public goods Public goods should be provided at a regional rather than national level if either the underlying problem cannot be tackled at national level, or if regional level intervention is more efficient.[2] Examples of potential regional public goods include: cross-border transport links, peace-keeping operations, fighting human trafficking, the fight against specific crimes (notably fraud and smuggling), infectious disease control, agricultural pests control and specific climate agricultural research (this could include food security). A natural problem with regional public goods is their source of finance. Countries are less keen to take loans to finance regional public goods with larger spill-over effects to other countries in the region, and multi-country loans are hard to manage in practical terms (Ferroni, 2001).

1.2. The increasing commitment of ACP countries to regional integration

The vulnerability of most ACP economies, their fragmentation and the resulting lack of resources requires action going beyond national borders. This is felt by ACP countries themselves as all belong to at least one form of regional cooperation or organisation. They see this as a remedy to their inadequate economic size with regard to the globalizing economy and an opportunity to adopt a more strategic approach to their development and speed up their socio-economic transformation. It is also a powerful means to stabilize their geo-political environment through fostering peace, reconciliation and stability in their immediate environment.

The importance of regional political integration was exemplified in Africa by the establishment in 2002 of the African Union (AU). The AU includes all African countries (except Morocco) with the ultimate aim of forming a "United States of Africa". Currently, it is involved in a variety of chiefly political activities, such as conflict prevention and peace keeping (e.g. Darfur), but economic and monetary union is also part of its agenda and the African Regional Economic Communities (RECs) are regarded as stepping stones to this goal.

In other regions as well, regional integration is seen as key. The Pacific region contains a number of organisations with specific fields of co-operation (e.g. SPBEA and USP for education). In the Caribbean, 12 of the 15 CARICOM members have progressed to a single market.

There have been long-standing efforts to harness regional integration for economic development. These efforts have been further stepped up in recent years, with many free-trade areas and customs unions under creation and a number of regions designing plans for ambitious common policies (see Table 3 below and Annex 1).

Table 3: Regional Economic Communities in the ACP: State of play of economic integration

REC || Integration reached [3] || Integration planned[4]

Caribbean

OECS || Single Market (through CARICOM) || Economic Union (2009

CARICOM || Single Market (2006) || Single Market and Economy (2008)

Central Africa

CEMAC || Single currency (CFA Franc pegged to the Euro), FTA (1998) and Customs Union (1994) || Full FTA, Customs Union and Common Market (no fixed date)

ECCAS || FTA launched in 2004 and slowly implemented || Customs Union (2011), Common Market (no fixed date)

Eastern Africa

EAC || Customs Union (2005) || Common Market (2012)

COMESA || FTA (2000) || Customs Union (2008)

Southern Africa

SADC || FTA (2008) || Customs Union (2010)

West Africa

UEMOA || Single currency (CFA Franc pegged to the Euro), Customs Union (2000) || Common Market (no fixed date)

ECOWAS || Partial FTA and Customs Union || Full customs union 2007 (delayed) Monetary Union (2009)

Pacific

PICTA || FTA (2003) || No further step planned

Beyond trade and economic integration, many initiatives aim at pooling efforts and resources of ACP states to tackle common problems.

In the Pacific, the Forum Fisheries Agency has developed an integrated approach in the management of fish, a vital economic resource for many countries. The Forum Fisheries Agency has provided state-of-the-art legal and economic advice for the conclusion of fishery agreements, surveillance of fishery activities in members' exclusive economic zones and for the development of a domestic tuna industry. Higher education has also traditionally been provided at the regional level in the Pacific as it was recognised as the most effective way for small countries to deliver university education to high standards, as demonstrated by the University of South Pacific (USP), the Fiji School of Medicine, or the University of Papua New Guinea (UPNG) – all with highly-evolved distance education facilities in the non-campus islands.

In Eastern and Southern Africa, the Nile Basin Initiative (NBI) was officially launched in 1998 by the ten riparian states. In a region that is characterised by severe poverty and instability and where the allocation and use of Nile waters have long been a source of serious tension, the participating states agreed on a shared vision to achieve sustained socio-economic development through the equitable utilisation of, and benefit from, the common Nile basin water resources. To convert this vision into action, multi-purpose infrastructure (for water supplies, hydro-electric power, irrigation systems) is being developed jointly to reduce vulnerability to droughts, to manage floods better, to ensure more water, more food and more electricity in a sustainable manner.

In the same region, the COMESA Free Trade Agreement (FTA) has proved beneficial to intra-COMESA trade, with trade growing at an annual average of 9% within COMESA and by 16% among FTA Member States between 2000 and 2007 – much more quickly than overall trade. A World Bank study concluded that the FTA has had a positive impact on growth in the members that joined the FTA, on cross-border investment flows and on the development of intra-industry linkages, with trade on semi-manufactured goods between FTA members overtaking trade of similar products with the rest of the world.

In the Caribbean, although tropical storms and hurricanes are frequent and have a large adverse impact on the fragile economies of the region, the present regional capacity to determine how severe a particular weather condition will be, and the likely effect in a localised area is very limited. CARICOM, the Caribbean Meteorological Organization and the national disaster agencies decided to pool resources in order to promote a reliable warning system and to obtain the advanced technologies that will provide the information needed to improve the preparedness of the authorities and the general public and thus help minimise loss of life and damage to property.

2. The challenges facing regional integration in ACP countries

Despite real progress and clear commitment to enhance regional integration, a number of critical challenges remain if regional integration is to fulfil its development potential for ACP partners.

2.1. The economic structure

2.1.1. Dual economies, weak export base and insufficient complementarity

Most ACP countries (especially those with fragmented markets) suffer from dual economies; that is to say small companies operate on a very local level, while larger, predominantly foreign multinational corporations (MNCs) are either present on the larger markets of the country (goods not produced locally; business services) or operate in a de facto off-shore mode (goods produced but not consumed locally – typically raw material). The result is a lack of medium-sized enterprises able to operate on a national, let alone regional, level.

Firstly, this is an issue as medium-sized enterprises are essential for growth and competitiveness. Secondly, the dual economy causes ACP countries to have a weak export base as demonstrated by the ratios of sectoral import and exports between the ACP and EU shown in Table 4 below. While the ACP region runs a trade surplus with the EU, it clearly exports primary goods (78.8% of their exports) and imports manufactured goods (74% of their imports).

Table 4: EU / ACP trade by sector 2006 (excluding South Africa).

Sector (Sub-sectors) || ACP Exports to EU || ACP Imports from EU

Primary Products || 78.8 || 23.9

Agriculture || 25.4 || 13.1

Energy || 43.5 || 9.1

Manufactured Products || 20.4 || 74

Machinery || 0.8 || 28.9

Transport || 4.9 || 15.7

Chemicals || 1.5 || 10.8

Source: European Commission

The combined effect of this duality and weak export base is a poor complementarity of national economies within a region, as economies find themselves producing and exporting a narrow range of similar products. As a result, trade integration is very limited in ACP regions and, as shown in Table 5 below, trade with the EU is generally larger than with regional neighbours. CEMAC countries, for instance, conduct 1% of their trade between themselves and about 45% with the EU. In a number of cases, however, significant trade barriers still persist and reduce the trade potential or trigger informal trade flows which do not appear in official statistics. Table 5: ACP regions import and export shares for 2004

Region || Exports || Imports

Within region || Other ACP || EU || Within region || Other ACP || EU

ECOWAS || 9.3% || 1.2% || 31.9% || 10.5% || 1.3% || 37.0%

CEMAC || 0.8% || 3.2% || 37.8% || 1.4% || 8.2% || 53.5%

COMESA || 9.2% || 4.8% || 29.9% || 6.4% || 2.7% || 22.4%

SADC || 2.1% || 4.5% || 32.6% || 2.5% || 4.3% || 23.3%

Caribbean || 8.9% || 0.8% || 20.0% || 5.8% || 1.4% || 18.1%

Pacific || 0.6% || 0.5% || 15.4% || 1.3% || 0.8% || 8.8%

Source: CEPII

Where conditions for effective and credible integration are strengthened, trade stands a chance to take off. This is the case in EAC where Kenya's traditional exports to neighbouring countries exceed its traditionally dominant exports to Europe.

The lack of diversification and complementarity is not only due to the aforementioned factors, but also to the continued existence of many regulatory, administrative and physical trade obstacles between countries in the same region and to the narrowness of the national markets (itself an effect of limited purchasing power). As a consequence, contrary to developed economies, the potential gains and prospects of regional integration in ACP countries lie more in longer-term prospects than in the rationalisation of existing production structures.

2.1.2. Vulnerability to economic and financial shocks

ACP countries are vulnerable due trade shocks due to their reliance on a small group of products, exported to a limited number of export markets (as mentioned above). Fluctuations in commodity prices are a cause of instability for people's income, fiscal revenues and macroeconomic stability. One striking example occurred in Ethiopia between 1986 and 87. A fall in the world price of coffee caused a 40% decrease in Ethiopia's terms of trade, ultimately resulting in a 6% decline in Ethiopia's real income. Foreign capital inflows, most of which are short-term, make many ACP countries vulnerable to financial shocks[5]. As financial shocks can also affect exchange rates, they can also prove disruptive for regional trade.

2.2. The need for (more effective) regional policies beyond trade

From European experience, regional integration requires more than elimination of trade barriers to be effective and beneficial for all (business, consumers, workers, citizens). Regional integration should serve the objective of sustainable development and poverty reduction, and therefore be able to develop co-operation and address common challenges.

These common challenges may include negative externalities, in particular the environmental and social impacts of increased regional economic flows. Such challenges can often be tackled at a regional level through the provision of appropriate regional public goods.

Agriculture is one example area; it remains the economic base for the majority of the poor in Africa and accounts for about a third of Africa’s GDP plus the bulk of its employment. In view of this, the AU and NEPAD have launched the Comprehensive Africa Agriculture Development Programme (CAADP) to foster agricultural development. In its communication "Advancing African agriculture", the European Commission, while recognising that the national level is where the most intense cooperation will continue to take place, expressed its view that in many areas (such as research, knowledge dissemination, trade facilitation, harmonisation of norm and standards, management of cross-border resources), action at continental and regional levels can contribute to agricultural development.

Regional integration can also make an important contribution to food security. Most ACP regions have put in place regional food security strategies to exploit the potential benefits of enhanced integration, notably in terms of trade (lowering the cost of inputs), infrastructure (sharing the costs of irrigation projects; improving road and lowering the cost of transport), market management (stocks, improved market information, regional exchanges) and control of animal and pest diseases.

Migration is a further area which can be addressed with policies at regional level. Growing mobility and migration leads may have destabilizing effects in countries characterised by weak governance and lack of social safety nets; for example, more rapid spread of communicable diseases across borders or xenophobic reactions. This challenge can best be met by regional cooperation and cross-border actions in support of national responses.

Regional economic integration between poor and poorer countries may also lead to a concentration of wealth in the lead economic area (regional power house) to the detriment of the poorest regions (Venables, 2000). In particular, integration will lead to increased FDI at a regional level, but this new investment may be focussed specifically within richer areas of the regional powerhouses, thus challenging the objective of poverty reduction for the region as a whole. This theory is backed up by empirical work on US and UK FDI in developing countries; it was found that countries with a larger market, or those countries closer to the larger market, received more FDI (ODI, 2006). Policies that aim to cushion potential losers are even more necessary in the case of "open" regional integration, where increased competitive pressure comes not only from the "powerhouse" in each region, but also from third parties.

A further area which can benefit from wider regional policies is that of industry competitiveness and the business climate. Well-functioning integrated regional markets benefiting from reduced transaction costs will increase trade, strengthen competition, encourage innovation and provide new and better quality goods and services to more people. This is particularly important for fledgling SMEs that need incentives to trade across borders. By contrast, the lack of business support services (inefficiency of financial markets, segmentation of services markets, etc) and of industrial strategies with a clear regional perspective are limitations to the creation of new businesses and the diversification of economic structures.

However, for SMEs to fully benefit, it is necessary to ensure that the relevant financing systems, which provide SMEs with access to borrowing, are in place. The improvement of regulatory framework and business climate will also contribute to attract foreign direct investments (FDI) in a context of local financial systems that fail to channel local savings to local investments. FDI is particularly valuable as/when it brings not only growth but also much-needed productive capacities (skills, technology, externalities, productivity). Furthermore, the need for increased R&D is being recognised by most leaders in developing countries as imperative for the diversification and upgrading of their economies. However, many of the results of R&D investment are only visible in the medium- to long-term while national budgets are hard-pressed to tackle other development urgencies. This makes the case for regional instruments in R&D particularly appealing.

Regional integration should also ensure macro-economic convergence and stability. ACP countries differ highly with respect to their macroeconomic indicators and policies. Strengthening the regional coordination of macroeconomic policies and structural reforms will help build stronger regional markets and macro-economic stability, including low inflation, less volatile exchange rates, sound fiscal policies and sustainable levels of public debt. Economic governance plays also an important role e.g. in the management of natural resources, fight against corruption, modernizing and reforming public finance. Regional coordination in these areas contributes to securing stability and the smooth economic adjustment needed for growth and poverty reduction.

Box 3: The challenges of monetary integration There are four monetary unions in ACP, covering a) four of the five countries of the Southern African Customs Union (SACU); b) the two economic and monetary unions in West and Central Africa that tied their common currency, the CFA franc, to the euro; and c) the OECS in the Caribbean that tied their currency towards the US dollar (and previously the British pound). SADC, ECOWAS, EAC, COMESA and CARICOM also aim to establish monetary unions. All regions have agreed on programmes of macroeconomic policy coordination and convergence. In Africa, the overarching objective is to implement a monetary union and a single currency by 2021 as agreed by the AU. Regional integration agreements are regarded as stepping stones towards a common currency for the continent. To date member countries have mixed results of macroeconomic convergence and therefore failed to reach their ambitious calendars for monetary integration. Incomplete trade integration, a weak business environment and underdeveloped financial sectors have remained problems. In ECOWAS, where the alignment of the UEMOA zone with the non-UEMOA members was originally envisaged by 2005, the heterogeneous economic structures of member states, notably of oil producer Nigeria as the biggest economy, and country-specific political and economic problems seriously constrained their ability to pursue consistent macro-economic policies. Another problem is the non-convertibility of currencies (except the CFA Franc) which hinders cross-border financial settlements (ODI, 2008).

2.3. Inefficient and/or incomplete infrastructure networks

The benefits of trade integration are hampered by weak trade facilitation infrastructure and systems, while natural handicaps (insular economies, landlocked countries) can be offset by regional cooperation.

In its Communication on the EU-Africa Partnership on Infrastructure[6], the European Commission has explained the need to secure the interconnectivity of the African continent and its different regions. Despite slow improvement, transport costs remain high, much higher than in other developing regions, averaging 14% of the value of all exports compared with 8.6% for all developing countries, and higher still for many landlocked countries – Malawi (56%), Chad (52%) and Rwanda (48%). This imposes a huge burden on cross-border trade and economic development at large. While the lack of energy remains a strong constraint on growth, there is a wide convergence that energy resources can be optimally exploited from a regional platform. Energy pooling and interconnectivity are addressing the problem of unreliable and costly services. Increased cross-border energy cooperation and trade is essential for improving reliability, affordability and access. The potential of regional integration and cooperation is particularly large when, as is the case in Africa, energy resources are substantial but require massive investment to be used.

2.4. Weak regional governance

There are three main causes of weak regional governance. Firstly, regional institutional capacities are not sufficient. The agendas for regional integration of most ACP regions are fairly ambitious and/or precise, but implementation is weak and hampered by the coordination ability of regional organisations and/or national governments. For example, the CEMAC Commission employs only 39 employees and 61 execution agents for, yet the ambitious integration agenda proposes to unite 35m people across 6 countries. While improving capacity should be a primary objective, it is also important that ACP states design the most appropriate regional integration agendas with a realistic degree of ambition that will work best in the specific regional ACP context.

Secondly, a wealth of regional organisations exists (see Annex 1). The RECs often have overlapping agendas, mandates and memberships and / or too weak structures and political weight. In Africa, a rationalisation exercise of the RECs is being undertaken by the African Union and NEPAD and the long-term aim is continental integration (e.g. a continental free-trade area in Africa).

However, the question remains as to how far this rationalisation process can actually go and what progress can be achieved in the short term given the differences in focus that sometimes exist between the AU formally recognised organisations and the actual capacities and mandates to deliver on an active economic and functional cooperation (see Table below).Table 6: Overview of African regional organisations

|| Focus || EC-ACP co-operation || AU recognised

|| Eco. || Fun. || Pol. || Eco. || Fun. || Pol.

West Africa || || || || || || ||

UEMOA (Benin, Burkina Faso, Cote d'Ivoire, Guinea-Bissau, Mali, Niger Senegal, Togo) || X || || || O || || ||

ECOWAS (UEMOA + Cape Verde, Gambia, Ghana, Guinea, Liberia, Nigeria, Sierra Leone) || X || || X || O || || O || O

CILSS (Burkina Faso, Cape Verde, Chad, Gambia, Guinea Bissau, Mali, Mauritania, Niger, Senegal) || || X || || || * || ||

Central Africa || || || || || || ||

CEMAC (Cameroon, Central African Republic, Gabon, Equatorial Guinea, Rep. Congo, Chad) || X || X || || O || || ||

ECCAS (CEMAC + Angola, Burundi, DCR, Sao Tome) || X || X || X || O || * || O || O

ESA || || || || || || ||

IGAD (Djibouti, Eritrea, Ethiopia, Kenya, Somalia, Sudan, Uganda) || || X || X || || O || || O

EAC (Burundi, Kenya, Rwanda, Tanzania, Uganda) || X || || X || O || Cap || || O

IOC (Comoros, La Reunion, Madagascar, Mauritius, Seychelles) || || X || || || Cap || ||

COMESA (EAC – Tanzania, IGAD – Somalia, IOC – La Reunion, + Angola, DCR, Egypt, Malawi, Swaziland, Zambia, Zimbabwe) || X || X || || O || O || || O

Southern Africa || || || || || || ||

SACU (Botswana, Lesotho, Namibia, RSA, Swaziland) || X || || || * || || ||

SADC (SACU + Angola, DCR, Madagascar, Mauritius, Malawi, Mozambique, Tanzania, Zambia, Zimbabwe) || X || X || X || O || O || O || O

North Africa (non-ACP) || || || || || || ||

AMU (Algeria, Libya, Mauritania, Morocco, Tunisia) || || || X || || || || O

Inter-regional || || || || || || ||

CENSAD (Benin, Burkina Faso, Burkina Faso, Central African Republic, Comoros, Côte d'Ivoire, Djibouti, Egypt, Eritrea, Gambia, Guinea, Guinea-Bissau, Ghana, Libya, Liberia, Mali, Morocco, Niger, Nigeria, Senegal, Sierra Leone, Somalia, Sudan, Chad, Togo, Tunisia) || || X || || || || || O

Notes:

Eco. : Economic integration X Key focal area

Fun. : Functional cooperation X Minor focal area

Pol. : Political cooperation O Area of EC-ACP co-operation

Cap. : Co-operation in capacity building * Minimal EC-ACP co-operation

Finally, there is insufficient ownership and diversity of stakeholders. Putting in place trade liberalisation and integration policies, plus broader co-operation requires strong political commitment to regional integration, a strong institutional and legal system, the awareness of all stakeholders (e.g. business, trade unions, civil society) and the convergence of their views. These pre-conditions do not always exist in ACP countries. The processes rely too often on general declarations by national leaders, without in-depth ownership by a wide range of actors such as national politicians, administrations, parliaments, business and non-state actors. The results of the public consultation back up the idea that broader stakeholder participation is required.

3. Why does the EU care?

Progress and difficulties in ACP regional integration are of strong interest for the EU. One of the objectives of EU development policy is to help developing countries to integrate into the world economy, together with the sustainable economic and social development of developing countries and the fight against poverty (Article 177 EC Treaty). The EU sees regional integration as a vehicle for smooth integration into the global economy and therefore lends its support to regional integration in developing countries. This is a long standing feature[7] of EU policy and that is particularly the case for ACP countries.

Conversely, the economic, social and environmental challenges facing ACP regional efforts may weaken efforts to reduce poverty and to foster sustainable development of ACP countries, and eventually counteract action supported by the EU.

3.1. EU-ACP relations and regional integration: an ancient partnership

Conceptually, there are several ways of conducting relations with third countries. These can be held principally in multilateral fora, on a bilateral basis with each individual country, or with regional groupings of countries arranged according to political, geographical or other interests. These levels are, of course, not mutually exclusive.

The EU-ACP relationship is, for historical reasons, not run primarily on a multilateral basis. A long-standing relationship, it formally began in March 1957 with the signature of the Treaty of Rome, which made special allowances for the then-called Overseas Countries and Territories (OCTs) of the European signatories of the Treaty. Since then, these countries became independent, but provisions were made to preserve the special economic relationships inherited from the past and to promote their economic and social development. Hence a first generation of association agreements with largely francophone former colonies in the form of two "Yaoundé Conventions" (1963 and 1969), and later, following UK accession in 1973, a second generation of agreements, the "Lomé Conventions" (1975, 1980, 1985, 1990) extending this special relationship to former British colonies in Africa, the Caribbean and the Pacific.

Therefore, since the origins of the EC itself, a special relationship between Europe and the ACP countries as a group has been developed. It encompasses trade arrangements, economic and technical assistance, development assistance and, increasingly, political dialogue and the protection of fundamental rights. For a long period of time, these successive conventions, that gradually expanded into new areas, remained the most far-reaching, elaborate and complex North-South contractual agreement, and were held as the flagship of EU development policy and external relations.

This special relationship with a group of developing countries remains at the core of EU development policy. It is recognised as such by the EC Treaty itself (Article 178(3)). Even when the EU was critically looking at the experience of the past and exploring new ways for the future[8], the multilateral option which would replace any bilateral arrangements with the ACP as a group or individually or regionally – i.e. going back on 40 years of special EU-ACP relations – was not contemplated.

EU relations with ACP countries have traditionally been conducted within a collective framework, the successive Lomé and Cotonou conventions, but in practice, mainly at the national level. This is the case for most Cotonou instruments: Political dialogue takes place mainly with national governments; development assistance has been mostly spent through National Indicative Programmes (NIPs) that respond to national Country Strategy Papers (CSPs); under Cotonou and until 31 December 2007, EU-ACP trade relations were governed by a unilateral EU trade regime towards ACP countries individually.

However, a purely bilateral relationship with each individual country is an option that has been discarded for a long time. Countries of the ACP group, and in particular of each of the sub-regions – Sub-Saharan Africa, Caribbean, Pacific – have common political, economic, social and geographic characteristics that make cooperation with them as regions or as a group more effective: general political undertakings shared by all; a single financial instrument (the European Development Fund) and the same financial procedures; and shared goal to reduce poverty and integrate into the world economy through a number of key policy areas (such as economic and financial cooperation, human and social development, improved governance).

This is why regional integration has been supported by the EU-ACP partnership agreements already since the second Lomé Convention (1979)[9]. The regional dimension of the EU-ACP cooperation is seen as a necessary complement to its national component. In effect, the general objectives of EU-ACP cooperation as set out in the Cotonou agreement (Article 19) are poverty reduction, sustainable development and integration into the world economy as the overarching aims of the partnership. In order to achieve them, regional integration and cooperation is one of the fundamental areas of interest of the Cotonou agreement. Among the overall objectives of the partnership, "regional and sub-regional integration processes which foster the integration of the ACP countries into the world economy in terms of trade and private investment shall be encouraged and supported" (Article 1). To this effect, "cooperation support shall aim to:

(1) foster the gradual integration of the ACP States into the world economy;

(2) accelerate economic cooperation and development both within and between the regions of the ACP States;

(3) promote the free movement of persons, goods, services, capital, labour and technology among ACP countries;

(4) accelerate diversification of the economies of the ACP States; and coordination and harmonisation of regional and sub-regional cooperation policies; and

(5) promote and expand inter and intra-ACP trade and with third countries." (Article 28).

In addition, protection of the environment and natural resources, as well as enhancing the role of non-state actors, are cross-cutting issues that should also be pursued at regional level (Article 32).

This makes the EU a unique partner of ACP as most other bilateral or multilateral actors of development policy have, until now, not placed the same emphasis on regional integration. Indeed, some have virtually no operations at regional level.

USAID has regional programmes in all areas of Sub-Saharan Africa plus the Caribbean, and works with a variety of partners including RECs such as EAC and ECOWAS across a range of areas relevant to regional integration. These regional programmes have been in existence for several years. Aid for regional projects in 2007 totalled $72m for West Africa, $30m for Southern Africa, $28m for East Africa, $15m for Central Africa, $316m for "Africa regional aid" and $15m for the Caribbean.

Canada has a "Pan African" programme which primarily supports institutions in building their capacity and structure. The support is limited to financial support and the organisations themselves must propose (and then implement) projects with a regional impact. CIDA quotes the African Union as a partner for this program. None of the RECs appear to be partners at present, and there is no direct focus on regional integration.

Japanese assistance to Africa is limited to a handful of countries, and does not include any clear regional development initiative. Assistance to the Pacific is more developed but still does not appear to contain any regional aspects.

The World Bank has recently adopted its "Regional Integration Assistance Strategy for Sub-Saharan Africa". On regional integration, the EU seems to be "leading by example" since the concepts and ideas developed in this document are very much in line with what the EU has been doing for long on regional integration.

Overall, the trend towards an increased focus on the regional level is now established as witnessed by the number of important development partners who are developing regional strategies This fact, in itself, confirms the need for further regional integration in the current global climate.

3.2. More and better can be done

While development co-operation is a shared competence between the EU and its Member States, the EU has a key role to play in supporting regional integration through its development policy. The EU's own experience with regional integration makes it a natural partner for regional organisations in ACP regions and it has developed significant experience and expertise in dealing with regional organisations and regional matters in developing countries. In addition, as in all areas of development cooperation, the EU has a key role to play in the co-ordination of Member States' efforts to increase aid effectiveness.

The EU has been very responsive to the trend towards enhanced regional integration in ACP countries. Many recent EU initiatives and policies seek to support this process, in particular: the regional strategies for Africa (October 2005), the Caribbean (March 2006) and the Pacific (May 2006), and the Joint EU-Africa Strategy of December 2007; the negotiation of region-to-region Economic Partnership Agreements (EPAs); the EU-Africa Infrastructure Partnership focused on network interconnectivity; the programming of the 10th European Development Fund (EDF) and the increase of Regional Indicative Programmes (RIPs) therein; the promotion of dialogue and cooperation with European outermost regions and overseas countries and territories (see Annex 7 for the full references of these documents).

3.2.1. The need for a consolidated EU vision

However, more can be done to make this partnership between the EU and ACP more effective. There is need for a consolidated vision, at EU level, of regional integration from a development point of view, as well as the necessity to better identify key challenges and tools in order to make EU policies in support of regional integration more effective. Three issues are critical in this regard.

First, there is a need to deepen the approach to regional trade integration, and adapt it to today's trading reality. While it remains essential that tariff and non tariff trade barriers be lifted on a regional level, and to support ACP capacities to do so, it is also important to reflect on the most appropriate ways to fulfil the Cotonou objectives to cooperate in other areas of regional dimension, such as trade in services (including maritime transport and information and communication technologies), competition policy, intellectual property rights, standardisation and certification, customs legislation and procedures, and sanitary and phytosanitary standards.

Second, it is necessary to develop a more consistent and articulated EU vision of the role of policy cooperation in a number of areas which are essential to bring forward the concept of sustainable regional integration and protection of regional public goods (agriculture, food security, environment and natural resources management, disaster risk management, health, higher education, research and development, rules aspects of business development). There is also a need to establish a better linkage with the key political ingredients for sustainable regional integration, notably peace and security. In all these areas, it is important to identify what needs to be done at which institutional level (continental, regional, national) and what is the role of the regional level.

Finally, it is appropriate to review the tools with a view to enhancing their complementarity and efficiency. Policy tools at EU level are diverse (development policy, trade policy, political dialogue), and the most appropriate policy mix needs to be developed to ensure its efficiency as well as its adequacy with varied regional realities. These tools need also to be complementary and coordinated with EU Member States and other donors' activities in support to regional integration, in order to develop the principles of aid effectiveness also in the context of regional interventions. The 10th EDF Regional Strategy Papers (RSPs) will provide the basis for the Commission and EU Member States to support regional integration in a coordinated fashion.

3.2.2. Setting out the objectives

A reinforced EU-ACP partnership in support of regional integration should pursue the following objectives:

– Reinforce the link between regional integration/cooperation and growth generation. The objective is to strengthen the impact of accelerated and deeper market integration (and of all forms of regional cooperation) on growth and poverty reduction.

– Reinforce the sustainability of the outcomes of increased economic integration. This means reinforcing cooperation with a view to protecting and delivering key regional public goods. This implies strengthening support for the integration agenda of the various regions and for their regional policies aiming to deliver these public goods.

– Strengthen the efficiency of regional governance, both at regional level and at national level. This requires a more streamlined organisation of regional agendas, increased capacity building at regional and national level, and broader stakeholder participation at regional and national level.

– Strengthen political dialogue and joint understanding between the EU and ACP countries and regions on the merits and objectives of regional integration, notably on the basis of EU experience. This means going beyond delivering financial assistance and develop new ways of working together toward more regional integration

Enhanced efforts to achieve the above objectives should also pursue more operational objectives, notably:

– Maximise the efficiency of the new generation of the 10th European Development Fund (EDF) programmes, and in particular the regional programmes, with a view to better leveraging regional economic development through clearly identified priorities for regional intervention, based on the regions' own agendas and a review of past implementation methods an increased coordination of EDF programming;

– Identify key issues for supporting the implementation of a major element of the EU-ACP relationship, i.e. the Economic Partnership Agreements (EPAs). The EPAs are aimed at strengthening regional integration by building upon, supporting and fostering existing integration processes. There are challenges that need to be addressed as regards the capacity of ACP economies and structures to implement and adjust to the EPAs.

– Enhance the efficiency of EU assistance (including outside EDF) with increased coordination and complementarity of Community, Member States and other donors' support. Regional programmes (RIPs) will serve as a basis for this coordination. On the basis of the European Consensus for Development, improving coordination between EU donors is a key objective for EU development policy – and a key to its success.

Figure 1: Problem tree linking general objectives, challenges and specific objectives

4. Three possible approaches for EU support

Considering that the regional integration agenda is set by the ACP countries themselves, EU support must aim specifically at supporting the regional integration process in ACP countries, i.e. helping ACP regions reach the goals they have set for themselves. Ownership is a central principle of the partnership between the EU and ACP countries and regions. The EU is therefore not in a position to make choices about regional integration in ACP countries. In a context of limited financial resources, it can, however, decide, among the choices made by ACP regions, which approach it will support as a priority in order to best achieve the objectives presented in Section 3.2.

Conceptually, three approaches for EU support to regional integration in ACP countries can be envisaged: elimination of barriers to trade; policy coordination to foster sustainable development; political cooperation to ensure the effectiveness of regional integration. They are presented here as separate concepts because each one has specific results that it is important to evaluate. In reality, policies are a complementary and mutually reinforcing mix of these three approaches, as shown in section 5. This mix is, and will remain, different in each region, as it depends on a region's own priorities.

4.1. Elimination of barriers to trade[10]

This approach is what has most often been referred to as "regional integration" and defined as the reduction of policy barriers to the movement of goods, services, capital and persons with the elimination of tariff and non-tariff barriers to trade, the removal of obstacles to investment from regional partners and the facilitation of payments at the centre. This approach was the main focus of the 1995 Commission Communication, and is reflected in Article 29 of Cotonou agreement on "regional economic integration"[11]. It heavily builds, although not exclusively, on trade policy and trade agreements between regional partners.

There is still plenty of scope for more effective trade integration in ACP countries. While regional agendas are ambitious (see Annex 1), implementation generally lags behind. There is, in particular, a potential for progress to be made in the following areas:

– Effective implementation of all regional trade liberalisation commitments (FTAs, customs unions) at national level is essential for the benefits of regional integration. As highlighted in the public consultation, this is the prime area where regional integration can deliver benefits and help attain development objectives. Protectionism and concerns about national sovereignty need to be overcome for these benefits to accrue. Regional trade will spur local competition as cheaper imports from regional partners will lower the price of agricultural and industrial inputs, as well as of household products. As far as customs unions are concerned, the correct implementation of external regional duties is as important as the free circulation of goods as it allows the region to protect its industry and agriculture as appropriate, to collect public revenue (sometimes, as in UEMOA, for the benefit of regional organisation) and to maintain the delicate regional balance of costs and benefits from openness to the rest of the world.

– Services: most ACP regions have not advanced much in liberalising services between themselves. As a result, there are currently no real regional markets for services. Wherever regions engage in building up such regional markets, however, they are likely to draw very large benefits – if commitments are effectively implemented. Indeed, whereas services are essential to any economy, regardless of its level of development, the service sector remains underdeveloped in most ACP countries and the excessively high cost of services can sometimes increase the cost of industrial products by as much as 20%. Establishing more transparent, stable and liberal regional rules on sectors crucial to development could considerably reduce the excessive costs currently borne by both businesses and consumers. This is, in particular, the case for infrastructure service sectors such as telecommunications, transport, banking and insurance, which are vital to the competitiveness of all businesses. The importance of lowering obstacles to regional trade in financial services was highlighted in the public consultation as a crucial way of improving the business climate.

– Investment: investment is key to growth and development. Lowering or abolishing regional barriers to investment can strongly contribute to a more dynamic regional economy. Easier cross-border investment within a region acts as a multiplier of more open regional goods and services markets. Free capital movement within a region improves the allocation of capital and helps attracting FDI by offering improved security to investors, be they regional or outsiders. Solid and transparent regional rules are particularly important to rebalance economies and attract investment outside the traditional fields of mining and oil.

– Customs and trade facilitation: Complex, diverse and inadequate customs procedures represent an important obstacle to trade, especially to intra-regional trade, in developing countries. This is particularly true in relation to transit procedures. As result of delayed deliveries, African countries tend to increase their inventory holding. Firm surveys among 9 African countries found that firms hold, on average, the equivalent of three months of input needs, which imposes heavy and unnecessary costs on them. These reforms should be carried out at regional level but appropriate capacities are needed in national customs administrations to ensure a smooth implementation on the ground.

– Technical barriers to trade (TBT): beyond SPS (see box below), TBT are an important impediment to regional trade. Lack of standardisation leads to otherwise unnecessary controls and restrictions to the free circulation of products, thereby reducing in practice the advantages of regional economic integration. Some of these technical barriers may indeed be designed to restrict competition and favour local producers – at the cost of local consumers. The adoption and effective implementation of regional technical rules and standards is thus an important step to increase regional trade flows.

Box 4: Sanitary and Phytosanitary Standards (SPS) The experience of the EU shows how regional integration in SPS can be of assistance to development. Unharmonised SPS act as a significant trade barrier, as trade in food and livestock is subject to costly checks and certification at borders. Harmonisation therefore brings the benefits expected from trade integration including less price distortion, and higher quality through competition. Harmonised SPS can also have wider effects. They provide a mechanism for addressing food safety on a regional level. Plant and animal disease eradication is a potential regional public good as disease, by definition, cross borders. Naturally, to reach a high level of SPS integration requires not just harmonised policies, but also strong capacity at both regional and national level.

The Economic Partnership Agreements (EPAs) have to be seen under this approach as an important contribution in support of regional economic integration. They are an innovation as the previous trade instrument used (unilateral preferences granted by the EU) could not foster regional integration: the Cotonou trade regime was granted to ACP countries on a national basis for their imports to the EU. EPAs are different in that they are negotiated with ACP regions and trade not only between ACP and the EU but also within ACP regions.

To date (see Annex 3 for further details), the comprehensive EPA concluded with Cariforum has had a positive impact on regional integration in the Caribbean as the negotiating process itself has allowed the region to build common positions and to strengthen its own ambitions. The final text covers not only trade in goods, but also technical barriers to trade (TBT), sanitary and phytosanitary measures (SPS), investment, trade in services and e-commerce, competition, intellectual property and public procurement, thereby allowing the region to develop and strengthen its own rules in all these important trade-related areas.

In all other regions, the commitment to a comprehensive regional EPA has been renewed at the highest political level and negotiations are still going on. It has been noted, however, that the negotiations have had an accelerating effect on a number of regional projects – for instance the finalisation of the ECOWAS Common External Tariff (CET). Nevertheless, in order to exploit the regional potential of the EPAs, it remains a priority to conclude the negotiations.

4.2. Policy co-ordination and co-operation for sustainable development[12]

This approach focuses on what could be called the deeper policy aspects of regional integration. It is fully reflected in Article 30 of the Cotonou Agreement[13] and builds on other types of cooperation often referred to as "functional cooperation", i.e. cooperation in policy areas which create the framework conditions for long-term development and sustainable interdependence of the economies. These address the physical barriers to intra-regional economic flows as well as supporting the interdependence of the economies managing common resources or challenges.

ACP regions and countries are more and more eager to go in this direction. They have put, or are putting, in place a number of initiatives and policies which deserve to be supported but are still at varying stages of development.

4.2.1. Reducing physical barriers through infrastructure networks

Regional cooperation on infrastructure is essential to ensure the interconnection of national networks. Completing the "missing links" between national networks is vital for roads and telecommunications as they are preconditions for intra-regional trade (see Figure 2). This is also the case for border posts. There are also large benefits to be expected from interconnection of energy networks: larger electricity networks are more stable and more reliable and pooling resources allows conducting larger projects (e.g. dams) for the benefit of the whole region.

Most of key growth constraints have a regional dimension, and if they were overcome, growth would likely increase by 2-4 percentage points. There have been various studies examining the economic rates of return on infrastructure projects, concluding that these rates tend to be high – but a regional functional approach is often needed to materialize the gains. Some striking examples:

– There is at present a severe shortage of electricity-generating capacity in Uganda. This could have been overcome through the use of effective regional electricity grids.

– There are also regional constraints to rail. Uganda’s imports and exports make heavy use of the port in neighbouring Mombasa. The Uganda-Kenya railways operate under a private franchisee which needs more effective regional approaches towards safeguarding a stable investment environment in order to stimulate more investment. The rail link was broken at the time of conflict in Kenya with big effects for Uganda.

– In case of Mozambique, higher road user charges due to the country’s non-membership of COMESA have resulted in a reduced frequency of use of the Beira Corridor for Zambian transit goods. Due to non-implementation of the COMESA Yellow Card Insurance Scheme, transport costs in the Beira Corridor are 5-10% higher than in other corridors of the region.

Figure 2: Trans-African Road Transport Corridors

·

4.2.2. Strengthening interdependence by action at macro-economic and micro-economic level

At different levels (macro, meso and micro), economic policy coordination is seen as important. Most regional organisations pursue an agenda of economic policy integration, but success requires objectives to be set and mechanisms for their implementation which are adequate for the region-specific context. Coordinating macroeconomic and structural policies is important to avoid cross-border spillovers within regional economic communities that can be detrimental to the process of trade integration.

At a more micro-economic level, reinforcing productive capacity building and improving business competitiveness and climate is key. The main weaknesses of the private sector in the ACP regions (in terms of productive capacities, financial services and competitiveness) should be tackled at different levels: company, national and regional. The relevance of the regional dimension, however, still seems to be underestimated by the main public and private actors Beyond the trade aspects of integration, other actions are relevant at regional level: improvement of the regulatory environment (such as company law, industrial standards, competition laws), strengthening of productive capacities, development of financial markets and improvement of financial regulations, promotion of inter-enterprise co-operation. Box 5 shows that many of the issues for reducing the cost of doing business have a regional/cross-country dimension as well as a national one.

Box 5: The cost of doing business Obstacles to doing business in the SADC were identified by ASCCI Regional Business Climate Survey in 2007. Many of them (marked *) are directly related to regional integration or the lack thereof. They were ranked as follows :

- Crime, theft and corruption - Customs regulations, procedures and bureaucracy (*) - Exchange rate fluctuation - Lack of market information - Lack of affordable and reliable transportation (road, air transport and ports) (*) - Economic and regulatory policy uncertainty (*) - Lack of transparency of rules and regulations - Trade tariffs and customs charges (*) - Legal environment (enforcement of contractual and property rights) || - Business licensing and operating permits - Access to land - Access to and cost of finance (*) - Business culture - Skills and expertise - Communication restrictions (*) - Insurance - Visa regulations (*) - Import-export licensing (*) - Phyto-sanitary and veterinary regulations (*) - Domestic content (*)

In particular, institutions responsible for implementation and respect of international standards, like specialized technical centres and laboratories, controlling, auditing and certification bodies and training institutions are inexistent at national level - because of a lack of critical mass - or are small and do not possess the necessary capacities to support the companies, which, in consequence, affects their competitiveness.

Box 6: The potential of regional cooperation in R&D In the area of research and development, while policies should be adapted to national capacities and specificities, the regional level is important to coordinate efforts, pool resources and exploit economies of scale. It can assist in important areas for development such as consumer protection, food security, health care and environmental sustainability. This is why the African Union Commission has launched a Science and Technology Consolidated Plan of Action. Regional cooperation is also essential to launch large projects, such as the African Space Agency. Regional economic integration has also an impact on companies R&D policies and therefore competitiveness. Literature shows that increased competition could stimulate investment and enhanced efforts to improve a company’s technological competitiveness, and better access to inputs might promote outsourcing activities. The empirical analysis shows that the impact on R&D investment after having joined a regional trade agreement is driven by product markets rather than by factor markets. Thus, regional integration promotes increased investment in companies’ internal R&D as well as increased purchase of external R&D.

Moreover, the current situation is characterised by a fragile framework of inter-enterprise co-operation at different levels. In this context, support for development of regional networks of business intermediate associations and promotion of regional inter-enterprise co-operation and investment can be more efficient than actions undertaken only at country level.

Finally, the development of a financial sector of a regional dimension would improve the conditions of access to credit institutions for ACP companies, in particular SMEs, and would therefore contribute to the improvement of their competitiveness.

4.2.3. Management of common resources or challenges

Tackling challenges of a trans-national dimension at regional level can be more effective than national policies alone, or a necessary complement to maximise their efficiency.

This is the case to improve food security: better-functioning regional markets for food and agricultural inputs, regional alert systems, improved regional transport infrastructure and the constitution of regional stocks can all provide a contribution to improved food security.

On agriculture, the regional – and, as far as Africa is concerned, continental – levels can provide a significant value added, notably on: the strategic integration of agriculture in development agendas; agricultural research (improved synergies, access to knowledge); policy harmonisation between the various levels; livestock development and disease control ; and risk management.

Similarly, in response to the serious development and cross-border challenges of communicable diseases, notably HIV/AIDS, malaria and tuberculosis, ACP countries are cooperating at regional levels in policy development and horizontal technical collaboration. On HIV/AIDS, both SADC and CARICOM have, with support of the European Commission, implemented regional support programmes for responses to the pandemic.

Environmental issues and climate change generally have an impact across borders, not the least because natural resources are often shared, and should therefore be considered as regional public goods. In the area of climate change there are particular arguments for regional cooperation to deal effectively with adaptation and related subjects such as disaster risk reduction: research on drought resistant crops, early warning for floods and droughts, insurance mechanisms, for instance, can all better function at regional level. Hence there are sizeable benefits from regional cooperation and policy coordination in the area of environment policy. A number of RECs have real responsibilities in this area but there has also been a tendency towards the ad hoc creation of separate specialised agencies.

Finally, there is an argument to deal with increasing disparities (cohesion) at regional level. Regions are increasingly considered to be the appropriate level to reconcile economic openness with social cohesion. Regional policies are also likely to increase a sense of solidarity within a region. Two aspects are present here. The first is the impact of regional integration on the weaker territories. As explained above, regional economic integration is likely to bring about an increased concentration of wealth in a limited number of countries and regions. A cohesion policy at regional level is the way to rebalance the benefits of regional integration and to support the legitimacy of the process, in particular – but not exclusively – when the strengthened and (relatively) weakened territories are located in different countries.

The second aspect is the impact of regional integration on the weaker social groups. Regional integration is strengthened by cross-border social regulations, redistribution mechanisms and the articulation of regional social rights, as well as by cross-border cooperation in health, education and social protection policies. Policies to address issues of cross-border migrant labour are of particular importance. Regions may adopt a number of instruments to enhance the social dimension of their region including laws, funds and intra regional social policy dialogue.

4.3. Developing political co-operation for effective regional integration

This third approach examines what conditions are required in order for regional integration to be effective. It is reflected in Article 30 of Cotonou Agreement[14] and essentially concerns the political factors surrounding regional integration, such as:

– The actual and potential relationship among partners: existence of genuine common interests, trust and interdependence; compatible historic, cultural and political patterns;

– The internal political and economic situation in partner countries: sovereignty, political commitment, peace and security;

– Factors facilitating the success of regional integration: rule of law, democracy and democratic governance.

The above factors are regarded more and more as important areas of intervention by the EU, and EU support is highly valued by ACP partners, but action remains stove-piped, disconnected from the continental political framework. There is also a need for coherence, especially since there are high expectations of ACP partners and a positive impact on development is expected in this area. It is particularly the case of the three following areas, in which ACP regions are increasingly active.

4.3.1. Regional cooperation for peace and stability:

The drivers of, and threats to, security, vary in nature and in geographical impact. Responses to security threats depend on political mandates and frameworks. However, it is acknowledged that political or civil instability or conflict in one country can have serious destabilizing effect in neighbouring countries. Preventing them and/or tackling them through regional cooperation or intervention is increasingly recognised as necessary.

For the African continent, this is done through the continental political frameworks for peace and security in Africa. The EU is supporting these efforts through the Africa-EU Peace and Security Partnership within the Joint Africa-EU Strategy. The activities of the related Action Plan require regional engagement and support for their implementation as well as for the coherence of policies at continental level.

In the Pacific, threats to stability are intra-state rather than inter-state and mainly due to the very recent accession to independence of most Pacific ACP countries, highly fragmented ethnic mix in most Melanesian countries, inalienable land tenure systems and population pressures. The Pacific Islands Forum adopted a collective security declaration in 2000, in Biketawa, Kiribati, which was invoked in 2003 with regard to the Solomon Islands, and in 2004 with regard to Nauru, and allowed the Forum to assist with the post-December 2006 coup return to democracy in Fiji. In accordance with the EU Strategy for the Pacific adopted in July 2006, the European Union is strengthening its region-to-region political relationship through an annual Ministerial-level political dialogue.

4.3.2. Good governance as a regional good

Strengthening good governance is essentially a matter for national governments and institutions. However, there is also recognition that there are mutual benefits of a dialogue at regional level on progress made in various countries so as to spread the benefits of improved governance.

The African Peer Review Mechanism (APRM) is a mutually agreed instrument voluntarily acceded to by the member states of the African Union (AU) as a self-monitoring mechanism. The mandate of the APRM is to encourage conformity in regard to political, economic and corporate governance values, codes and standards, among African countries and the objectives in socio-economic development within the AU socio-economic programme: the New Partnership for Africa's Development (NEPAD). More than half of the AU’s 53 countries (29) have formally joined the APRM by signing the Memorandum of Understanding on the APRM. This shows that an increasing number of African countries are committed to governance reforms to create favourable conditions for sustainable development and that African-owned mechanisms have an important contribution to make to improve governance.

4.3.3. Harnessing the effects of migration

Intra-regional migration or, more precisely, intra-regional labour-mobility is part of the collective history and culture of many developing countries. In the past, this phenomenon went largely unnoticed by policy makers, both in ACP countries and in the EU. With the increasing importance of migration issues on the EU policy agenda, the call for 'well managed migration' has appeared at the forefront of cooperation and dialogue with ACP countries, not only in connection with migration movements to the EU, but also in its intra- and inter-regional ACP context. Since 2006 – the launch of the EU Global Approach on Migration – important conferences were held (Rabat, Tripoli), regional processes aimed at management and facilitation of free movement of people were strengthened (notably in ECOWAS), and many national and regional migration management capacity building initiatives were launched.

4.4. Comparing the approaches

4.4.1. Overview of advantages and drawbacks

It is important to sketch out the advantages and drawbacks of the various possible approaches of EU support to regional integration, even from a theoretical point of view, as the analysis needs to ensure that a reinforced partnership in this area will effectively deliver on the objectives of accelerating and deepening market integration in support of growth and poverty reduction; protecting and delivering key regional public goods in view of reinforcing the sustainability of regional integration; strengthening the efficiency of regional governance; and enhancing political dialogue and joint understanding between the EU and ACP countries with regard to regional integration.

The following analysis tries to identify, from a qualitative point of view, the main economic, social and environmental effects that can be expected of different approaches, while also citing empirical studies and examples from both ACP and non-ACP regional integration experiences. These effects are considered in isolation, and therefore only the effects of an increased focus of EU support on the chosen option are considered. However, a number of drawbacks arising from one approach may be minimised if a number of policies are put in place, either at regional or national level. Conversely, in order for the advantages of an option to accrue, accompanying policies need also to be put in place.

The starting point is the current situation. Depending on the starting point in a given region, advantages and drawbacks from focussing EU support on a given approach will be different.

The time horizon is important, and cannot easily be accommodated in an overview. A number of policy actions at regional level may have significant costs in the short-term but large benefits in the longer term. This is typically the case of economic reforms deriving from regional integration: while the benefits of the abolition or diminution of tariffs should be delivered to a large number of people over the long-term, they will almost inevitably hurt a small number of protected sectors in the short-term.

This being said, the three possible approaches – elimination of barriers to trade, policy co-ordination and co-operation for sustainable development, and political co-operation - have distinctive economic, social and environmental advantages and drawbacks. These can be summarised as follows:

Eliminating barriers to trade has many important economic advantages, but the balance is less clear in social terms and rather negative in environmental terms. The imbalance between large expected economic advantages and significant social and environmental drawbacks may raise concerns about the sustainability of the first approach if appropriate measures and policies are not in place to redress or prevent them. This is even more important given that the economic benefits will not be delivered in the short-term but in the medium- to long-term.

Table 7: Elimination of barriers to trade – Advantages and drawbacks

|| Advantages || Drawbacks

Economic || The reduction or removal of tariffs will result in lower prices for goods imported from other countries in the region, both for producers (including exporters) and for consumers. The reduction or removal of tariffs can lead to increased government revenue through increased imports, production and consumption (tariffs, direct and indirect taxes) Larger, more integrated markets are open to more competition, which will lead to higher productivity, lower prices and increased quality (if the right conditions / legal framework on competition are in place and enforced) Larger, more integrated markets will attract more FDI, with a positive impact on productivity Cross-border flows will increase, which will foster specialisation, improve the division of labour and allow the development of larger regional companies, with associated productivity gains The removal of barriers to trade, standardisation and computerisation of procedures reduces corruption in trade matters. || Infant industries or small local companies in weaker member economies may suffer from the increased competition from stronger member economies or from multinational corporations (MNCs) In the short-term, the loss of revenue from the removal of tariffs may cause funding problems for governments unless fiscal reform is implemented Effective implementation of both SPS and international standards may have negative effects on certain traditional products and production processes, affecting the livelihood of certain communities

Social || There is the potential for a rise in the importance of border regions, fuelled by increased cross-border flows. Standard of living should rise as the costs associated with the transit of goods falls, which should contribute to poverty alleviation, particularly in land-locked countries. Employment (and possibly salaries) will increase in industries that grow because they produce more (as a result of increased exports or enhanced overall growth) and in industries that generate a higher productivity. This should contribute to poverty alleviation. The effective implementation of SPS will improve food safety. The removal of trade barriers can have benefits for food security as agrifood products should more easily reach regional markets. || The freer movement of people may involve problems: people migrating to wealthier areas, thus generating agglomeration; easier cross-border movement could allow unrest and security problems to cross borders; diseases (e.g. AIDS) can spread more easily along trade corridors. Regional disparities may increase as regions with greater potential profit from the new economic opportunities, while poorer regions stagnate. Sectoral disparities may increase as economic sectors with greater potential profit from the new economic opportunities, while other sectors stagnate. In the short-term, there is a risk that food flows more to richer and/or urban regions across borders, thereby adding to food insecurity in poorer and/or rural regions.

Environmental || The harmonisation of SPS provides the opportunity to tackle animal and plant diseases on a regional level if supporting policies are implemented with sufficient organisational capacity || There is the potential for damage to the environment as a result of increased economic activity. Examples are: increased air pollution; strain on water resources; reduction of biodiversity; overuse of resources, illicit trade (ex. timber).

What does empirical evidence say?

– In the non-ACP regions of the EC and Mercosur, regional integration was found to have raised intra-regional trade by 65% and 150% respectively. However, the mere reduction or elimination of tariffs on intra-regional trade will have fewer effects if the potential for intra-regional trade is small, as is the case in Africa, where intra-regional trade covers only a small percentage of total trade, partly due to similar trade and production structures (in addition to informal, un-reported trade). It is therefore assumed that the ACP countries will mainly gain when moving towards deeper regional integration.

– RTAs encourage extra-regional FDI flows and for some regions intra-regional FDI, though it is not always clear whether this is because of trade or investment agreements. For example, one study found that the increased market size of a "Maghreb" region would increase FDI stocks by up to 165% for its member countries. One particular study found that membership of a region per se does not increase FDI, but that regions with sufficient trade and investment provisions will help to attract inwards investment, with investment provisions in particular being effective as they provide positive signals to foreign investors. Because ACP regions (e.g. COMESA, ECOWAS) are only at the beginning of including investment provisions compared to other regions (e.g. NAFTA and MERCOSUR) the costs of non-integration in terms of attracting FDI can be considerable.

– Studies also show that different countries within a region experience different FDI related effects. This difference reflects variations in the relative size of the industrial sectors among member countries, but also the degree to which economic integration, directly or indirectly, increases the locational advantage of a country relative to other member countries.

– Migration provisions in the ACP are most advanced in the CARICOM. As a result, the stock of Caribbean migrant workers within the region increased by 18% between 1990 – 2000 And CARICOM nationals account for over one-half of all flows within the region (52%). Intra-regional migration has responded well to a relaxation in migration provisions in the Caribbean.

– A study of manufacturing firms in three ACP countries (Benin, Malawi and South Africa) found that exporting firms as a whole have higher productivity levels than domestically focused firms. The destination of export was not important for the productivity of firms in Benin and Malawi, while in South Africa, firms exporting intra-regionally were found to be more productive than those exporting to the rest of the world. The implication of these findings is that increased trade and investment from regional integration will increase aggregate growth.

– There are a number of factors that may condition whether regional integration is associated with convergence or divergence of incomes amongst its members (but the size of the group is not relevant): integration of monetary policy, harmonisation policy, different institutions and trading rules; labour mobility; macro economic convergence; presence of a sub-regional development finance institution; and competitive advantage.

– While empirical evidence is slightly variable, it generally points to the fact that there is not a strong link between regional integration and income convergence. One particular study of 46 African countries assessed the level and rate of the convergence of income for the members of SADC, COMESA, ECOWAS, CEMAC and UEMOA. The link between regional integration and income convergence was found to be low. Three explanations were given for this. First, the slow growth of output, productivity and accumulation of production factors; second, the low levels of intra-regional trade, the bias towards commodity trade and the low factor mobility; and third, the limited inflow of FDI which further constrained capital accumulation.

The above is comforted by the main findings of the Sustainable Impact Assessments (SIA) conducted in the context of the EPA negotiations (these can be found on the following website: www.sia-acp.org). As EPAs aim at fostering intra-regional trade through a range of trade and trade-related measures, they are directly contributing to the elimination of trade barriers as identified under Approach 1. Out of the twelve main recommendations highlighted in the SIA[15], the following are particularly relevant:

"1. The EU and ACP countries should strive to ensure coherence between EPA negotiating configurations and overlapping efforts at regional integration and should ultimately pursue, at regional level, strategies for the developing key economic and industrial sectors and for promoting sustainability.

6. The EPAs should contribute to a stable climate for FDI and encourage FDI and regional investment that support sustainability through, inter alia, including means of cooperation to achieve compliance with the enforcement of environmental and social regulations at the national level.

7. EU-ACP cooperation on standards should focus on addressing obstacles to trade, maintaining high levels of protection for consumers and the environment and assisting ACP countries to develop their own national and regional approaches to SPS and TBT.

8. The EU should engage in ongoing cooperation with the ACP in several areas related to trade facilitation including, inter alia, customs, transportation, technology, business information and human resources.

9. Development cooperation should focus on priority needs for diversification of production and exports towards higher value-added products, with an emphasis on reinforcing economic and industrial sectors impacted by the EPAs, while ensuring the sustainability of new development.

10. Development cooperation should focus on technical assistance to collect information and data on trade and sustainability to support sound policy development.

11. Development cooperation should focus on capacity building to promote sustainable development in both the private and public sectors, with an emphasis on training, research and development, and a sound regulatory framework."

These recommendations point to two important directions:

– To enhance the benefits of EPAs and minimise their potential cost, there is a strong need for accompanying measures at regional and national level.

– Development cooperation should be broad-based and cover areas well beyond trade, in particular regional rules for business and sustainable development.

Policy cooperation and coordination in a number of key areas goes some way towards neutralising the sustainability issues raised in approach 1. Like the first approach, the second approach brings many economic benefits. Nevertheless, in order to fully reap the economic benefits of approach 2, certain preconditions, which are largely encompassed by approach 1, are necessary. While negative social and environmental impacts are not on the same scale as under approach 1, there are still some issues, though social issues are of a more short-to-medium term nature.

Table 8: Policy co-ordination and co-operation for sustainable development

|| Advantages || Drawbacks

Economic || Improved regional rules of economic governance will bring further incentives for intra-regional trade, with the associated benefits in terms of lower prices for consumer goods and agricultural and industrial inputs. Improved regional infrastructure will bring down the costs of consumer goods and agricultural and industrial inputs Infrastructure hubs and corridors can be drivers for economic development (creation of industry clusters with high positive externalities). Larger and deeper regional financial markets will improve access to capital and improve the allocation of financial resources. Improved competitiveness and the implementation of international standards increase the export potential, fuelling economic growth. Macroeconomic and monetary co-operation provides a more stable and investment-friendly environment, attracting FDI Improved, harmonised statistics at regional level provide a sounder basis for decision-makers, both at national and regional level, thereby reducing the risk of policy failures (inadequate action). || Environmental protection programmes may restrain the economic opportunities of certain communities. In the short-term, certain local businesses may have difficulties to conform to new standards.

Social || Redistribution initiatives will limit migration flows and levels of disparity. Food security should be improved through co-operation in early warning systems. Co-operation on non-transport infrastructure matters should provide some communities with new amenities (access to energy, clean water), increasing their standard of living. Tackling human diseases in common will improve results. || New infrastructure projects, plus corridors and hubs can lead to the displacement of people as land is needed for the new project (the displaced are more likely to be poorer rural communities). Macroeconomic and monetary co-operation could have negative effects in the short term for certain groups (difficulty with price adjustments, understanding new currencies). The experience of many African countries with currency re-numeration demonstrates these issues (e.g. Ghana – the recent Cedi re-numeration).

Environmental || Joint management of natural resources should increase sustainability. Pooled resources can be managed more effectively (e.g. fisheries, water, forests, energy, dams). A co-operative approach to regional infrastructure will prevent the overuse of certain routes and the environmental damage which accompanies such overuse. || The environment may be damaged through new infrastructure projects (e.g. deforestation) unless environmental impact assessments are carried out.

What does empirical evidence say?

– There is a dynamic relationship between trade agreements and other type of cooperation: countries that cooperate most extensively with each other on trade are also each other's favoured partner for non-trade related cooperation. Therefore, trade cooperation paves the way for further cooperation in areas such as infrastructure cooperation, regional environmental protection or other political integration.

– While regional integration could improve the liquidity, efficiency and competitiveness of African countries, it needs to be carried out at the right pace and in a pragmatic way. National financial markets must be developed before starting to integrate them. African financial markets could, however, benefit from closer cooperation including cross-border listings and enhanced exchange of information and technology.

– Assessing the macroeconomic indicators within the ACP, most authors do not find convincing evidence of increasing convergence of basic macroeconomic indicators; a prerequisite to move towards a monetary union. There is a positive correlation between infrastructure provision and trade and growth. An increase of one standard deviation (from the mean) in the communications infrastructure raises the volume of trade by roughly 11 percent, compared to a 7 percent effect on transport infrastructure and a 2 percent effect on trade for tariffs. For least developed countries (LDCs), transport is more important than communications. The effects of communications infrastructure on trade grows as a country reaches the middle income range. Upgrading a primary road network connecting the major 83 urban areas in sub-Saharan Africa would expand overland trade by around US$250 billion over 15 years. The new Central African network, linking Chad, the Central African Republic and Cameroon, is expected to save US $86m per year. In the case of the Kenya-Uganda transit corridor (linking Mombasa with Kampala) the average transit time had been reduced by 10 days to 15 days.

– As a result of regional liberalisation, truck utilisation in southern Africa has almost similar ratios as European haulers (8,000 to 12,000 km/month). In Central and West Africa, on the other hand, the utilisation is as low as 2,000 km/month. For Zambia, the regional liberalisation of trucking services has reduced transportation costs, increased foreign (mainly South African) investment in the trucking industry, and increased the overall competitiveness of trucking services.

– There is no alternative to regional cooperation for African countries when it comes to energy supply. The continent’s energy resources are concentrated in few countries where weak infrastructure and political conflicts make it difficult to access the resource. DRC and Ethiopia are accounting for about 60% of Sub-Saharan Africa’s hydroelectric potential but need to be linked to the economic centres of their region in order to attract investment, enabling them exploiting their resource. The threshold of 400 MW, which is regarded as necessary for effective thermal power generation, is only met by 14 countries in Sub-Saharan Africa.

– Water is a scarce source in many ACP countries, and it is increasingly leading to conflicts. Effective regional management of water resources will therefore help to prevent conflicts. Cooperative development of water resources offers great opportunities to unlock economic growth and promote regional integration. On shared river systems, the use of water in a country can profoundly affect the quality and quantify of available water in downstream countries. Riparian countries must search for sustainable solution can allow the equitable sharing of the scarce resource.

– Enhanced intra-regional trade and cooperatio