THE NEED FOR AFRICA’S ECONOMIC UNION

Ozodi Thomas Osuji

 Aug 17, 2006

africainstitute@yahoo.com

       Common sense readily suggests the need for Africa’s economic union. But in Africa, folks do not do the obvious and wait until they are forced by circumstance to do so.

       I think that most Africans understand the need for a continent wide economic union but do not attempt to bring it about because they are still fascinated by their national sovereignties, sovereignties given to them by Europeans, the very Europeans that are today relinquishing their national sovereignties and embracing economic and political union. 

       In North America, the USA, Canada and Mexico have entered into a limited economic union, NAFTA, and efforts are currently underway for a larger economic union encompassing all the Americas.

           

        The era of the nation-state is effectively over; we are entering the era of regionalism (European region, Asian region, North American region and African region) and, ultimately, will enter a unified world with universal economic and political institutions.

       The Nation State is an accident of history whose time has gone. Perhaps, there was a time when the nation-state was useful but it certainly is no longer the case.  We now live in a global economy with a global market; producers have to sell their goods and services all over the world if they are to stay afloat. IBM, for example, sells its business machines all over the world; Microsoft sells its software, windows operating system, all over the world.

        If a business organization in Africa wants to sell either business machines, such as computers or the software to run them, it must compete with IBM and or Microsoft.  People will buy the better product and will not buy a product just because it is made in Africa. In a world market where goods produced in other parts of the world can easily reach markets everywhere, businesses must compete with businesses everywhere in the world.

       Generally, individual African countries markets are too small to make production of certain goods and services not efficient and profit generating. Consider automobiles. This is a capital and labor intensive industry; it requires millions of dollars to set up a car manufacturing factory. Now, suppose such a factory is set up in Benin Republic, given the demand structure in that country, the market, would the manufacturer sell enough cars to make profit? How many persons live in Benin and how many of them have the disposable income to buy cars?  How many of them already have imported cars?  What is the market for automobiles like in Benin and can it support car manufacturing?

        A certain number of people must have the income to buy cars produced by a car manufacturer for him to cover his production costs and make sufficient profit to want to go into that business in any particular locale.  Benin Republic does not seem a viable market for a car manufacturer.

        Businesses are rational organizations and, as such, are motivated by the profit incentive, not charity; they will only go to where they will make profit, not where they are supposed to do something just so that they benefit the people. As Adam Smith (Wealth of Nations) reminds us, when people act out of self interest, the blind forces of the market make them utilize resources more efficiently hence produce and sell goods and services cheaply.  Classical economic theory tells us that resources are scarce and need to be efficiently allocated, distributed in society and that the best way to do so is through the free market. In the capitalist market, it is assumed that each individual is a decision making unit, a rational person who is motivated by desire to optimize what is good for him, and makes buying decisions from self interest. The rational individual wants the best goods and services in the market but wants to pay the least price for them. He will buy from sellers who present the best goods and sell cheap. Therefore, in as free enterprise market rational producers strive to produce their goods and services as efficiently as is humanely and mechanically possible so as to sell cheap. Those who have the best goods and services and sell them cheap are bought from and those with similar goods but sell at higher prices, perhaps, due to higher production costs, are not bought from. Those who sell more make more profits hence survive in the market. In the meantime those who sell have succeeded in allocating scarce resources efficiently. 

      On the other hand, those bleeding hearted liberals who claim to be motivated by public interests tend to utilize resources inefficiently, produce and sell shoddy products and services, and sell been more expensively; any goods and services sold by the government is bound to be more expensive; it takes ten government workers to change one electric bulb, you know. Governments are the worst producers of goods and services.

      The communists who claimed motivated by social interest produced the worst goods and services human beings have ever produced in their history on planet earth, and worse, they used the power of the state to terrorize people to conform to their very unproductive economic system. Clearly, the private enterprise economy, properly regulated, seem the best economy there is in the extant world. (If you have an alternative to it, show us, but please do not appeal to our feelings, do so in a cold hearted, disinterested, dispassionate, objective and empirical manner.)

      

       If Benin Republic is part of a larger market, say, all of Africa, the car manufacturer in Benin would be able to sell sufficient cars to cover his costs and make decent profit hence stay in business.

       Although Africa is poor, nevertheless, there are enough Africans who have the money to buy cars that the manufacturer who set up his shop in Benin would make profit if he is able to sell his cars all over Africa without having to pay custom duties (tariffs) at the various borders.

       If all African border restrictions are removed and the Benin car manufacturer is able to ship his cars to all over Africa, and sell them, he would have the incentive to manufacture cars in Benin.

 

      Economic Union means removing the custom duties and tariffs (fancy names for taxes) charged on goods and services as they move across national borders.

      

       In a hypothetical perfect economic union, all import taxes on goods and services are removed and business across borders flow without hindrance. Thus, a manufacturer in France can ship his goods to Germany and elsewhere in the European Common Market and sell them as he would do in France without incurring the additional cost of paying taxes at the various national borders.  This means that he has a larger market in which to sell his goods and, therefore, is able to produce a lot more goods, sell more and make profits.

       The EU encompasses about 400 million people; this means 400 million potential customers for every manufacturer selling his goods in the EU.  Clearly, this offers manufacturers’ larger markets and business opportunities and ability to take advantage of economies of scale.

      On the other hand, if a manufacturer only could sell his goods in, say, Luxemburg, he would not have enough buyers of his goods to make investment in the capital intensive factory he needs to build to produce his manufacture profitable.

       Simply stated, large markets make the production of certain goods and services advantageous than is feasible in small markets.

       If you make the assumption, as economists make, that rational human beings engage in business activities to make profits and will do business where they can make profits, then you appreciate why certain places are favored by businesses. Businesses are not charity; they are profit making ventures and must operate in markets where they make profits. 

 

       One of the reasons why the United States of America is able to dominate in the manufacturer and selling of certain goods is her sheer size. The USA is the forth largest country in the world. (Russia, Canada…which is mostly sub-arctic waste land, China, the USA, Brazil and India are the largest countries in the world; minus Canada, these countries are also the largest markets of the world.) The almost 300 million Americans mean that the market is large enough to enable manufacturers to sell to a large pool of buyers hence make profit. (Considering the large pool of middle class persons in America, folks who have the discretional income to buy goods and services, you see why America is the best market in the world.)

       Those with good business ideas, even in Europe, come to America to set up shop because they want to make profits, profits that would elude them if they were limited to a small market, such as Lichtenstein provides. 

       The USA provides a lot of advantages to manufacturers and they gravitate to it to set up manufacturing factories. It is therefore not a mystery why the USA is the most industrialized country in the world and the richest country in the world.

       Not too many countries in the world are going to pose serious challenge to the economy of the USA. (China, Japan, Germany, India and Brazil are America’s present competitors.  The EU as a collection of many European countries, of course, poses serious competition for the USA. Indeed, the EU, among other reasons, was formed to challenge America’s economic and political dominance.)

 

      It is clear that large markets have advantages that individual African countries do not have.  Even geographically large African countries, such as Sudan, Congo, South Africa, Niger, and Chad suffer certain disadvantages.  They either have small populations (Sudan has a population of less than 30 million persons), or the population is so uneducated and poor that they cannot buy modern goods and services.  For example, out of Sudan’s 30 million persons, perhaps, one million is able to participate in the modern economy, have the income to buy manufactured goods; the rest of the population live subsistence lifestyle. Congo has a population of about fifty million persons, most of whom are too poor to be of any use to modern manufacturers. (It is not numeral strength but consumers buying powers that counts.)

       Of all the African countries, excepting South Africa, which really is a Western economy, only Nigeria can be said to have large enough market to be attractive to manufacturers that want to sell to large markets. Unfortunately, the advantages of Nigeria are offset by many of her people’s decision to be antisocial rather than pro-social persons.

 

       The economic disadvantages of individual African countries are reduced if these countries are combined into a single market. If all sub-Saharan Africa, that is, black Africa, enter an economic union, at least, 100 million of them have the economic ability to buy certain manufactured goods, hence making manufacturing in Africa a profitable proposition.

        Industrialization requires a large population to buy manufactured goods. An Industrializing England used to sell her goods in the Americas and elsewhere. 

      

      We have ECOWAS in West Africa, a half hearted economic association handicapped by member states inability to relinquish their taxes on what they call imported goods from other West African countries. We have also had similar ventures in East and South Africa.  These half measures are not successful because Africans have not grasped the need for a unified African market.

    

       We need to have all African countries as one market; we need to remove all taxes (custom duties, excise taxes, tariffs) on so-called imported goods from other African countries and allow goods to flow from one African country to another.  This is the only way to encourage economic development in black Africa.

    

        We also need to remove the requirement of visas, even passports, for Africans to travel from one African country to another.  Our present so-called national boundaries were imposed on us by Europeans.

       In traditional African societies, we did not impose restriction on the movement of people from one part of Africa to another. 

       Any African ought to be able to go to any African country he wants to go to and show, say, his driver’s license as his ID.

     Any African ought to be able to work in any African country that he or she wants to work in.  It is an artificial restriction to prevent folks from going to where they could obtain work or where they want to live.

       The reasons given for the practice of restricting folks from going to work in other African countries is the same as those given for the restriction on travels: respect of national sovereignty? 

       The idea of nation-state is a peculiarity of Europe; it arose from the 1648 treaty of Westphalia that ended the 100 years religious wars that ensued during the protestant reformation, and eliminated the papacy’s meddling in the several European countries internal affairs; that treaty made the various European nations independent of Rome and in the process established the concept of Nation-state. 

       There is no reason why Africans should be saddled with conventions that evolved in Europe, conventions that those who evolved them, Europeans, are increasingly seeing as obsolete and discarding. 

      The concept of Nation state is a dinosaur; it must be replaced, first, with regionalism, such as Africa union, and, ultimately, with universalism (world Government). 

       Africans do not need to be practicing conventions that are no longer relevant in the contemporary world.

     

         Africa Union, AU, ought to stipulate in its charter the right of all Africans to travel to all over Africa without the necessity of visa and passports, and Africans right to work in any part of Africa they choose to do so. 

       If it is argued, all things being equal, that most people would go to where the jobs are, such as South Africa and Nigeria, so what?  This is natural economic behavior.

       Human beings always gravitate to where they find resources to support their lives. At present, for economic reasons, many Africans are trying to smuggle themselves to North America and Europe. The poor always go to where they can find work. Latin Americans, poor folk, crash USA’s borders seeking menial jobs in America.

       In the long run, this process will profoundly alter the hue of Europe and North America. Europe will become a mixture of black and white folk, brown, as is North America; this is simple historical reality and there is no use fighting the inevitable; the world is now an interconnected place; developments in transportation technology, among other things,  has made it inevitable for folks to go to all parts of the world and it is now silly to expect people to reconcile themselves to their places of birth; the whole world is our home; we ought to make it as smooth as possible for people to adapt to all parts of the world by providing all human beings with sound education in science and technology, up to technical and university levels, so that we do not have pockets of poverty all over the world.

       The only realistic measure that would prevent migration from one part of Africa to another is to develop all of Africa’s economy so that people who want to stay where they are can find jobs where they are. (The naturally curious will migrate to other parts of Africa and the world.)

 

        I will not burden this essay with elaborate macro economic arguments for common markets.   It is common sense that guides the essay.

       Common sense requires that all Africans act as one in all spheres, particularly in politics and economics. We must have an African Economic Union and, ultimately, an Africa political union, a federation where each African tribe (which, properly considered, is a nation) is a state. 

        The future of Africa is union, both in politics and economics; it is a waste of time fighting the inevitable; we ought to consciously do that which is inevitable; we ought to establish the framework for Africa’s economic union, and, eventually, Africa’s political union.

 

 

Ozodi Thomas Osuji

August 17, 2006