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The Economics of Secession and Inter-Regional Trade

When the army of the South Sudan routed its Sudanese counterpart and controlled the town of Hegli, many were analyzing the time span in which South Sudan was declared the newest independent sovereign country of the world and went to war with the country it originally seceded. For many, indeed the time span was like  light speed.

The recently escalated war between Sudan and South Sudan was reminiscent of the 1998 war between Ethiopia and Eritrea. The newly seceded and independent state of Eritrea waged a bloody war against Ethiopia before celebrating its fifth year of independence.

At the formative years of Eritrea’s secession from Ethiopia, the hottest topic of debate was its possible effects to other potential candidate countries of Africa. By the same token, the independence of South Sudan on July 9, 2011 spurred talk of a domino effect of similar moves toward independence throughout Africa and the Middle East. Adding even more geopolitical fuel to the fire, secessionist impulses are also major domestic issues in China and India.

It is easy to understand the political side of secession. Kenneth Waltz, a noted scholar in the field of International Relations in his 2001 book- “Man, the State and War” sarcastically stated that even three men with three meter square of land  will defiantly choose to secede just to have something of their own. But, on the politics of to secede and not to secede, what many wonder is if there an economic case to be made in the politics of  secession.

Parag Khanna, in his January 2011 article on Foreign Policy magazine, by enticingly titled “Breaking Up Is Good to Do,” argued not only that the break-up of countries is picking up steam again, but that in many cases secession is good rather than bad. Secession is supposed to solve otherwise intractable political problems without imposing too many economic costs because, in the age of globalization, “borders are practically irrelevant.”

Parag Khanna suggests that 30 to 40  countries are worth splitting up or otherwise restructuring. He and others see it as a natural consequence, especially for countries in Africa and the Middle East that emerged out of the dissolution of European and Ottoman empires in the 20th century. However, both the scope of this argument and the incompleteness of its logic combine to make it worth rebutting. To see why, let’s focus on Africa, where, prior to Sudan’s partition, nine of the world’s 13 most “artificial states” defined in terms of both ethno-linguistic fragmentation and straightness of borders were concentrated.  What were those troubled 13 countries? Based on an analysis by Alberto Alesina, William Easterly and Janina Matuszeski of the International Security Studies Institute, nine of them were in Africa: Chad, Equatorial Guinea, Eritrea, Mali, Morocco, Namibia, Niger, Sudan and Zimbabwe. The other four were Ecuador, Guatemala, Jordan and Pakistan. To start with Sudan, perhaps the situation there was indeed irremediable given the ongoing civil war. But the continuing violence in the disputed Abyei region is a reminder that the decision to erect national borders between warring parties is not a political panacea.

After all, an agreement must still be reached on the often-difficult decision about where to draw those borders. And even though an agreement on where to draw the line in the sand between Sudan and South Sudan has been reached on paper, fundamental economic problems remain and require coordination. For instance, South Sudan has much of the oil, but the pipeline that would allow it to access markets runs through the north Sudan. Furthermore, it is a dangerous oversimplification to characterize the problem with Sudan as just a religious fault line dividing Muslims in the north and Christians and animists in the south.

Most people probably remember the genocide in Darfur on the northern side of the border, where both sides share the same religion of Islam. But not as many have taken note of the current conflict between the Lou Nuer and the Murle within South Sudan which claimed 1,100 lives in 2011. Or to cite another example on the northern side of the border, what about the fighting in 2009 and 2010 between the Misseriya and the Rizeigat in South Kordofan?

These other conflicts point to a broader problem with the blunt instrument of secession. Groups in conflict seldom divide up cleanly across geographic lines. Witness the UN reports that “more than 350,000 southerners have moved to South Sudan since October 2010 after decades living in the north, but some 700,000 southerners remain.” To be sure, Sudan is an extreme case even among the 13 most artificial states in terms of the degree of armed internal conflict there. Only one other country on that list, Chad, was listed as recently being subject to an ongoing civil war by the Center for Systemic Peace.

In most of the countries in Africa where secession is proposed, poverty trumps violence as the most immediate challenge. Economic growth, the required elixir, would be strengthened by more integration, rather than the fragmentation that secession would engender.

Due to internal and external factors, Africa ranks poorly on virtually every measure of international integration. Sub-SaharanAfrica, for example, scored the second-lowest among the world’s regions in terms of the depth of its trade, capital, information and people flow, as measured by the 2011 DHL Global Connectedness Index which was principally done by the noted Indian economist, Pankaj Ghemawat. According to this report, as a reasonable rule of thumb, a new border will slash the trade across it by two-thirds.

One of the reasons that Africa has lagged other regions in terms of economic development is its geography. The continent as a whole is very far from major world markets. When one divides foreign market sizes by geographic distance based on the rough approximation that doubling the distance between countries cuts their trade in half and adds them up, sub-Saharan African countries can access one-third the foreign demand that European countries can.

And even without adding more borders through secession, Africa already has a disproportionately large number of landlocked countries, Ethiopia and South Sudan as the latest members of the group, hampering its access to foreign markets. Mali, which is one of the 25 poorest countries in the world, exemplifies the problems faced by Africa’s landlocked countries particularly well. In addition to gold mining, Mali is heavily dependent on agricultural exports, given that 80% of its labor force is engaged in farming and fishing.

While a recent coup and terrorism in the north’s arid Saharan zone have generated headlines and hurt tourism, the biggest economic problem Mali faces has to do with strife in the Ivory Coast, its traditional lifeline to the sea via the Niger River from the time when both countries were French colonies. A new rail line to Senegal provides some relief, but the trains take days to cover the thousand-odd kilometers between Bamako and Dakar.

While Mali continues to suffer from tribal and religious tensions, it is hard to see how splitting the country up would ameliorate the grinding poverty that overshadows most aspects of existence there. Rather, what seems to be required is better integration with neighboring countries and opening up borders and barriers, rather than building more.

Inadequate transportation infrastructure severely worsens Africa’s geographic challenges, and is an area in which improvement efforts should be focused. According to the resent world import-export trade analytical study, African exports to the United States incur shipping costs three times as high as those from developed countries, and landlocked countries incur inland transport costs four times higher than coastal countries in the region.

The difficulties of coordinating infrastructure development across countries suggest that this is another problem that secession would amplify. The deficiencies of Africa’s physical infrastructure are also compounded by corruption at the dozen or more checkpoints that tend to crop up along roads between one capital city and another. More national borders and more governments, of course, would mean more checkpoints.

Particularly in the context of debates about secession, Africa’s very low level of intra-regional trade is a concern worth emphasizing. According to the World Trade Organization (WTO), 88% of Africa’s merchandise exports went to non-African buyers in 2009, compared to only 38% intercontinental trade in Europe, 48% in Asia, and 52% in North America. The paucity of Sudan’s trade with the rest of Africa is vividly illustrated in the figure above.

This reflects, in part, the legacy of infrastructure investments by former colonial powers. They were more interested in efficiently extracting natural resources than in facilitating internal or intra-regional trade. But since neighboring or close-by countries tend to share a host of cultural, administrative, geographic and economic similarities; Africa is missing out on the significant efficiencies countries gain when they trade intensively with their neighbors.

While the USA and Europe are languishing in a terrible and painful economic crisis and recession, Africa continues registering an impressive annual rate of economic growth. Currently, five out of the top ten fastest growing countries in the world are African. Due to this fact, Africa is widely assumed as the next global economic growth pole in a very short term. Despite this impressive growth record, however, Africa still facing a number of challenges which will hamper its endeavors particularly in its investment sector. Low level of intra-regional trade is one among the many challenges.

The importance of intra-regional trade in Africa is heightened by the fact that many African economies are already considered too small to be economically efficient. Further subdividing sub-scale economies and erecting new barriers between them and what might become their most promising markets in the future hardly seems like a recipe for the economic development Africa is currently achieving and desperately needs to continue in doing so.

A rough analysis of WTO disputes seems to indicate that economic engagement and military trouble are substitutes. That, along with a sense that prosperity can help temper xenophobia, suggests that the economic benefits of integration as opposed to secession might even help ameliorate some of the continent’s underlying political conflicts over the long run.