Finding the right chord: A look at integration in North Africa

Deeper economic cooperation requires significant work and government political will. Many of these countries have inward-facing economies and incompatible trade, investment and financial regulations.

The example of Tunisia

The problem of currency conversion is a good example. Tunisian law prevents trading the dinar on international markets and prohibits the import or export of the currency. The government adopted the non-convertibility policy to control inflation, but it hurts entrepreneurs and limits Tunisia’s role as a potential financial hub for the region.

These exchange limitations frustrate Tunisian business, according to Bassem Bouguerra, a Tunis-based entrepreneur and founder of the advocacy group Tunisian Institutional Reform. Tunisians have limited access to buy and sell in foreign markets because bank transfers and the use of credit cards are restricted, he says. Businesses cannot buy ads on Facebook or Google and cannot sell apps on iTunes; consumers cannot use Amazon or eBay, or buy plane tickets online.

In turn, Tunisian businesses cannot offer these services to foreign customers. “Tunisian software developers and entrepreneurs say that they cannot build products here since monetisation of IT products is virtually impossible,” Bouguerra says. “They say that they will try to leave the country to launch their products elsewhere.”

Failed integration 

Regional integration has been tried before, but failed. The Arab Maghreb Union (AMU), a trade union founded in 1989, includes Algeria, Libya, Mauritania, Morocco and Tunisia. Rivalries between member states, mainly between Morocco and Algeria over the disputed Western Sahara, have rendered the AMU largely ineffectual.

Poor implementation of the Greater Arab Free Trade Agreement (GAFTA), a project of the 22-member Arab League, means it has little effect in the region. Regulatory restrictions on the movement of goods and investments have counteracted GAFTA’s most important contribution: reducing the region’s tariffs. Violent instability in Libya and Algeria has also scared off investors and trading partners. The closure of the Morocco-Algerian border in 1994 has hindered the movement of people and goods.

The foundations for cooperation exist, but need to be expanded and applied more effectively. Gains from trade liberalisation in North Africa, through organisations such as GAFTA, could approach $350m in 2015, according to a 2012 UN Economic Commission for Africa report.

Some progress is underway. Libya’s direct investment in Morocco, mainly in real estate, has spiked since 2011, according to officials who did not provide numbers during a joint economic summit in Casablanca last March. Bilateral trade has also increased and in 2013 exceeded $110m, according to the Moroccan trade minister. Libya could benefit from Morocco’s expertise in infrastructure, agribusiness and industry. The Moroccan trade minister touted regional integration as a “strategic” way to “create suitable economic conditions to foster shared wealth”.

Economic policy making should reflect the advantages of free movement of people between North African countries. For example, governments could launch university exchange programmes with foreign students to boost the comparative advantages of the region’s universities and schools, such as Tunisia’s excellent vocational institutes. Trade delegations could also make investors more aware of opportunities in neighbouring countries.

Some North African countries prefer partnering with other regional unions, without realising the added benefits that a united front could present. Egypt, Morocco and Tunisia have signed bilateral agreements with the EU to improve financial and regulatory standards with the promise of trade privileges. They might have negotiated better terms as an economic union than an individual country.

Current prospects for integration are unclear, given the region’s political instability. The revolutions that swept North Africa in 2011 might make governments more cautious and inward-looking in the interest of stability. But the nationalist themes of the Arab spring could also inspire policymakers to address economic grievances through creative solutions, such as a unified region.

A consolidated North Africa could also serve as a crucial link between Europe and emerging sectors in sub-Saharan Africa, such as energy, transportation, IT and resource extraction. European firms are increasingly looking for new opportunities on the continent. North Africa could be the gateway.

Duncan Pickard is a non-resident fellow at the Rafik Hariri Center for the Middle East, focusing on politics and economics in North Africa. He has worked in Tunisia for Democracy Reporting International, the African Development Bank and the International Foundation for Electoral Systems.

This article was first published by Good Governance Africa