African Union and EAEU: similar challenges and mutual interests

_ Yuri Kofner, junior economist, MIWI – Institute for Market Integration and Economic Policy. Munich, 23 November 2019.

In 2019, we celebrate the 25th anniversary of modern Eurasian integration and the 5th anniversary of the Treaty on the EAEU. But not only in the vastness of Eurasia integration processes have intensified and integration anniversaries are celebrated. And on another continent – in Africa – this year an anniversary is being celebrated and its integration processes are also rapidly accelerating. Its scale is even more ambitious, and the consequences could be even more far-reaching than those of the EAEU. Eurasian exporters, universities, and governments should not miss the chances of the African Age and of cooperation with its potential major player, the African Union (AU).

The new player of the forgotten black continent

20 years ago in the Libyan city of Sirte, the creation of the African Union was announced – a complex trade, economic and military-political bloc, consisting of all 55 countries of the African continent. It was formally established in 2002 in Durban, South Africa, as the successor to the Organization of African Unity (OAU, 1963-1999).

The African Union has its own administrative, economic, and political bodies. The highest decision-making body is the Assembly of the African Union, which includes all heads of state or government of the AU member states.

The AU also has a representative body, the Pan African Parliament, which consists of 265 members elected by the national legislatures of the AU member states.

Despite the fact that the African Union is a complex intergovernmental organization, which is often accused of low efficiency, at the same time it has many aspects aimed already at deeper integration than, for example, the EAEU has. Thus, there is an institution of permanent representatives of the governments of the member states at the AU, whose task is to ensure a straightforward process of coordinating the positions of the national governments, as well as to help the African Commission in developing its policy. There is also a similar institution in the European Union. However, in the EAEU, such an idea is being discussed so far only as a proposal from the expert community to improve the institutional functioning of the Eurasian bloc.

In addition, the Constitutional Act of the African Union spelled out the possibility of imposing sanctions against member states that do not pay their contribution to the general budget on time or do not comply with the decisions of the association. The EAEU is not yet ready for such a deepening of union obligations.

At present, the AU has a more than ambitious goal of creating a common internal market without barriers to the free movement of four factors of production: the Continental Free Trade Area, as well as even a full-fledged monetary and economic union with its own central bank and single currency. And all this is planned to be implemented already by 2023. [1], [2]

Relations between Eurasia and Africa

Since 2010, the trade turnover of the EAEU countries with the African states has grown 2.7 times and amounted to USD 21.7 billion in 2018. In terms of trade with the EAEU, the African Union is already ahead of the United States of America, which, on the one hand, shows a positive trend trade and economic cooperation, and on the other – a large, not yet used potential for increasing and deepening trade volumes in the future.

Over 80% of the EAEU exports to African countries go only to five countries – Algeria, Egypt, Morocco, Nigeria, and Tunisia. The share of Egypt in trade with the EAEU countries exceeds 33%, practically reaching USD 8 billion in 2018.

At the same time, African countries trade most of all with Russia (it accounts for 94% of trade with the African continent). The export of Belarus to Africa over the past 8 years has grown 1.5 times, of Kazakhstan – 2.4 times. There is a stable growth of trade turnover of 10-15 percent yearly between the EAEU and the Southern African Development Community, a member of the AU, and by the end of 2018 this figure was USD 2 billion.

The African states continue to enjoy broad trade preferences and a preferential customs tariff regime by Russia for imports from Africa. Agreements on the encouragement and protection of investments have been concluded between Moscow with a number of African states (with Angola, Algeria, Egypt, Zimbabwe, Namibia, Nigeria, South Africa, Equatorial Guinea), and Russia’s accumulated investments in Africa in the period from 2003 to 2017 amounted to about USD 17 billion.

The African states are demonstrating a fairly persistent interest in products, technologies, and human capital of the Eurasian Economic Union.

EAEU – African Union

In this regard, it would be advisable to start negotiations on a possible preferential trade and economic agreement between the EAEU and the African Union.

The Eurasian Economic Commission (EEC) is currently negotiating an agreement on a free trade zone with Egypt. The third round of negotiations is scheduled to take place in the third quarter of 2019. And in September 2017, the EEC and the government of the Kingdom of Morocco signed a memorandum of cooperation. Also last year, the commission held a meeting with the ambassadors of the states of the East African Community, where they agreed on further cooperation.

It is noteworthy that the Eurasian Economic Commission and the African Union signed a memorandum of cooperation at the Russia-Africa summit in September 2019 in Sochi. This memorandum may give impetus to launch closer interaction between the commissions, and later – negotiations on the signing of a preferential trade agreement.

Should relations between the EAEU and the African Union be formalized in free trade agreement, as between the EAEU and Vietnam, or an agreement on trade and economic cooperation without a (broad) reduction in import duties, as between the EAEU and China? The decision should be based on trade gravity and general equilibrium simulations. At the same time, it is already possible to intuitively outline potential areas of cooperation that are most interesting for both parties, which one way or another should be covered in the potential agreement (s).

In goods trade, it is worth opening markets for each other, i.e. to reduce import duties for the supply of machinery, equipment, chemical products, automobiles, electronics, and all other types of high technology products. Most likely, African countries will be interested in importing goods from the EAEU, necessary for the modernization of their own production, which, at the same time, are more price-competitive than similar goods from the EU and the USA.

In trade in agricultural products, markets could be opened asymmetrically. In this regard, the EAEU might nullify import duties for those food products that grow only in tropical and subtropical climatic zones, such as cocoa, and in return, the African Union would be removing barriers to the import of wheat, sunflower oil, and other traditional Eurasian crops.

One of the most important areas of cooperation would be the harmonization of technical regulations and standards, as well as sanitary, phytosanitary, and veterinary measures. Although it will be more difficult to agree in the second case due to the sensitivity of the agricultural sector for the economies of both regions.

An important part of a potential agreement could be a section on investment, research, and industrial cooperation. The African states are interested in attracting foreign direct investment and in technology transfer. Especially in such spheres as mining and energy resources, astronautics, nuclear energy, pharmaceuticals, military industry, production of agricultural machinery. Here, the Eurasian companies would have many things to offer to their African partners.

In addition, the EAEU and the African Union could agree on cooperation in digitalization, where the Eurasian countries have above-average potential. In particular, in the field of digital education, the digitalization of agriculture and industry, the Eurasian Union could act as a net exporter of digital services.

A separate interesting area of ​​cooperation could be the exchange of experience between the commissions in the management of economic integration processes. The EAEU and the African Union share many similar challenges, for example, a small share of mutual trade in total trade turnover (14% and 13%, respectively), excessive dependence of the primary sector in the economic structure, the need for catching-up scientific and technical modernization, the need to develop better governance capacity. Experience exchange, not only between the commissions but also at the level of expert communities of both unions, could facilitate the solution of these similar problems.

In particular, the EAEU and the African Union could exchange ideas on how best to formalize trade and economic cooperation not only among themselves but also with the European Union. The key question could be how to profitably interact with a relatively more influential and competitive Europe, without exposing their own developing industries and modernization.

In addition, interregional cooperation between integration blocs meets the advancing trends in the global economy and fits perfectly into the R20 concept proposed by the Valdai Club at the T20 summit in May 2019.

Due to the limited powers of the supranational authorities in the EAEU and in the AU, it will probably not be possible to cover all of the above areas within a single agreement. It would be advisable to sign, firstly, one horizontal agreement at the union-to-union level, which would stipulate trade issues (tariffs, trade protection measures, technical regulations and standards, SPS measures, cross-border competition), as well as the creation of working groups on a wide range of trade-economic interaction. Secondly, under this horizontal agreement, interested countries could, on a bilateral basis, e.g. Belarus-Egypt or Russia-Morocco, sign deeper vertical trade and economic agreements, covering deeper issues such as, for example, opening branches of universities, creating joint industrial parks, infrastructure and energy cooperation.

In the end, I would like to note that the EAEU and the African Union have one more thing in common. The formation of the one and the other is associated with a common idea – pan-Africanism and Eurasianism, respectively. Moreover, both concepts first had to go through the path of deradicalization, getting rid of the clearly aggressive anti-colonial and anti-Western rhetoric towards more moderate ideas of continental integration and multipolar cooperation, before becoming a constructive element of the integration processes in Africa and Eurasia. Both here and there, discussions about the content of the new pan-Africanism and pragmatic Eurasianism continue.

We see that the EAEU and the African Union share similar challenges and mutual interests. And this is already enough to talk about comprehensive and deep cooperation.

Notes

[1] Due to the too great heterogeneity in the levels of socio-economic development and the needs of the monetary policy of the African countries, the introduction of a single currency between them will lead to serious financial and credit crises. Work on de-dollarization and coordination of the monetary and fiscal policies of the AU member states towards their gradual convergence would be much more effective. In fact, this is exactly what is being done in the Eurasian Economic Union.

[2] At a meeting in the German Bundesbank in early July 2019, the President of the National Bank of Namibia, Ipumbu Shiimi, confirmed to me that the plans to create a common currency by 2023 are too ambitious, so the AU member states are foremost focusingg on creating the continental free trade area.

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