The Power of Regional Markets
People, goods, and services move across borders, but the marketplace, policies and infrastructure from country to country are often very different. These variations can act as a constraint to economic growth, especially in developing countries. Aligning regulations and policies through regional integration can not only boost regional cooperation, it can also serve as a conduit for foundational infrastructure such as power, water, and roads. Countries can grow faster, create more jobs, and attract more investments when they are part of dynamic regional markets.
MCC has partnered with 29 countries and invested more than $15 billion dollars in compact grant programs, but only recently has the agency been able to develop and execute programs geared towards regional integration. The 2018 African Growth and Opportunity Act and Millennium Challenge Act Modernization Act authorized MCC to address economic challenges through cross-border regional investments. And we have wasted no time in trying to tackle poverty reduction through regional investments. In the last month, MCC signed a Memorandum of Understanding (MOU) with Burkina Faso and Cote d’Ivoire, as well as a cooperative agreement with the West African Power Pool (WAPP), as part of a regional energy interconnection program between Burkina Faso and Côte d’Ivoire.
“At the World Bank we firmly believe regional integration will be essential to create the jobs, the inclusion and the dynamism for youth in order to recover from the current crisis.” — Deborah Wetzel, Director for Regional Integration for Africa, the Middle East and Northern Africa, World Bank Group
Electricity in West Africa
According to the U.N., 789 million people globally — roughly 548 million in sub-Saharan Africa — lack electricity, and the ECOWAS region is one of the hardest hit areas. ECOWAS countries rank among the lowest for electricity access rates in the world, with roughly 42 percent of the total population and 8 percent of rural residents having access to electricity (source: UN Sustainable Energy for All). When businesses deal with unreliable electricity, they face production interruptions, or worse yet must rely on expensive generators and “dirty energy” to maintain operations during outages.
“Energy poverty in sub-Saharan Africa remains significant. MCC is able to make a unique contribution to the development of the West African energy sector because we provide grants — not loans. This will allow the power utilities in this region to rehabilitate, improve, and expand their infrastructure without having to pass through additional costs to consumers. At the same time, we will work closely with institutions to reform processes and build capacity, leaving these institutions a more efficient and cost-effective provider of electricity for the people who need it the most.” — Sam Kwon, Senior Director (Energy) in MCC’s Department of Compact Operations
The investments Kwon described will not only strengthening the reliability of electricity in West Africa, but also help to achieve the U.N.’s Sustainable Development Goals (SDGs). As part of the 2030 Agenda for Sustainable Development, Goal 7 seeks to “ensure access to affordable, reliable, sustainable and modern energy for all.” MCC’s collaboration with WAPP and MOUs with Cote d’Ivoire and Burkina Faso will be critical in this effort.
In addition to the regional investment program between Burkina Faso and Côte d’Ivoire, the MCC-Burkina Faso $450 million dollar compact — signed in August 2020 — also focuses on power. The compact aims to address the high cost, poor quality and low access to electricity by improving energy infrastructure, generation capacity and source diversification, including through greener energy sources like solar.
“Energy in all its forms — and electricity in particular — is always a necessary ingredient for economic growth. And, generating and accelerating economic growth is a powerful way to reduce poverty. By providing the funding for energy infrastructure as well as the technical assistance to build the capacity of power sector institutions, MCC is empowering partner countries to create and drive their own economic growth and poverty reduction.” — Sam Kwon
Regional Integration in Africa
At a recent panel discussion titled: Powering African Growth — Regional Integration, participants were unanimous about the need for regional integration in Africa. Dr. Donald Kaberuka, Chairman & Managing Partner for SouthBridge Group and the 7th President of the African Development Bank, served as the panel’s keynote speaker and stressed the need for greater regional investments at this time. “The COVID-19 crisis has highlighted the need to work together and accelerate multilateralism as opposed to focusing on individual country progress.”
“Recognizing regional integration as a critical engine of growth, the African Union passed the African Continental Free Trade Agreement, and when fully ratified this will become the largest free trade area in world, encompassing 55 countries with a population of 1.3 billion people and a combined GDP of 3.4 trillion.” — Mahmoud Bah, Acting CEO, MCC
Pauline Zouré-Kaboré, Burkina Faso’s Minister Delegated to the Ministry of Economy, Finance and Development, Responsible of Land Use Planning and Prospections, agreed with this view, saying the impacts of COVID-19 would have been less severe across Africa had there been greater cross-border integration.
“The goods we produce rely heavily on international markets, and this disrupted our trade,” said Zouré-Kaboré. “We need to set up our own regional value chains, which will enable us to progress on information and communications technology (ICT), trade, energy, and other areas.”
While participants in the Powering African Growth panel all agreed about the tremendous potential of regional integration in Africa, including energy markets, they were also unanimous in cautioning about the difficulties associated with a such a large undertaking. Ministers of Energy, Ministers of Finance, and other regional institutes and regulators must be engaged early in the process and countries must agree to prior commitments, while also addressing political-economy challenges.
The Millennium Challenge Corporation is an independent U.S. Government agency working to reduce global poverty through economic growth. Created in 2004, MCC provides time-limited grants and assistance to poor countries that meet rigorous standards for good governance, from fighting corruption to respecting democratic rights.
To find out more about the Millennium Challenge Corporation, visit MCC.gov.