Abu Dhabi

Source: Mufakiru Alemarat

Dr. Ali Mohamed Al Khouri

In the context of a competitive and dynamic global economy, Arab-African economic integration stands out as a potential opportunity and a viable area for innovative and strategic exploration. Although this integration promises diversified and sustainable growth for both the Arab region and the African continent, and the reorganization and development of prevailing economic relations and structures; Reaching this goal requires a precise strategic approach to take advantage of the full opportunities.

The Arab region stands at a crossroads. Economic diversification is not an option, but rather an inevitable necessity. This is because the economic path of this region, which is facing a period of economic recalibration, is expected to record growth rates of about 3.3 percent this year (2024), compared to 5.8 percent in 2022, according to the Arab Monetary Fund. Such indicators confirm the need for economic diversification beyond traditional dependence on the oil and gas sectors – which are expected to shrink and their prices to decline in the coming years – and keep pace with the global shift to innovative and sustainable economic sectors, in line with renewable energy and sustainability trends.

At the heart of this discussion is Africa’s untapped potential; This continent – with its great resources and emerging markets – represents an undiscovered area for economic growth, despite its significant contribution to global exports of basic metals. Statistics show that the average annual growth of renewable investments in Africa, since 2000, has reached about 96 percent, while the continent receives only approximately 2 percent of global investments in this field. This large gap indicates a space full of opportunities for Arab countries to exploit the vast capabilities in the renewable energy sector on the continent, especially wind, solar and hydropower. However, the success of these endeavors depends on the level of awareness of investment opportunities in these areas and effective planning strategies.

Naturally, achieving the potential of Arab-African economic integration is not without challenges, the most prominent of which is the significantly high costs of intra-regional trade in the Arab region, compared to their counterparts in more economically integrated regions, such as the European Union. This situation calls for making serious efforts to improve economic integration in the Arab region, emphasizing the activation of cooperation between regional institutions, and more effective implementation of multilateral agreements.

As for Africa; The way forward involves strengthening the continent’s capacity to deal with global economic shocks, overcome internal conflicts, and improve risk management. This must be paralleled with the implementation of resilience strategies for resource mobilization and equitable green growth, smart industrial strategies, strengthening tax systems, diversifying financial instruments, and reforming financial structures.

To achieve meaningful Arab-African economic integration, several strategic directions must be followed. A critical area for both regions is to benefit from digital transformation and technological advancement. The integration of digital technologies into trade and finance is not only a general trend; It is an essential component of modern economies. In Africa in particular, digital skills and the adoption of technologies – such as automation, artificial intelligence, machine learning, and blockchain – may enhance the transformation and digitization of production, distribution, logistics and procurement processes.

There is no doubt that this transformation contributes to improving operational efficiency on the one hand, and meeting the financing needs of companies on the other hand. This is by enabling and verifying real-time transactions; This means reducing the need for physical audits. For example, the adoption of digital technologies in African supply chain financing has led to the value of the financing market rising by 40 percent to $41 billion in 2021 and 2022. This highlights the potential of digitalization to open new economic horizons, in particular improving access to financial resources for SMEs, which often represent the backbone of emerging economies.

There are other sectors ready to embrace innovation, namely the sustainability sector, and high-tech sectors with great growth potential, such as renewable energy, healthcare, and advanced technology, which are not well explored in intra-African trade. The Arab region can play a decisive role in this context, not only as an investor, but also as a strategic partner in transferring technology and knowledge, developing the workforce, and enhancing the environment for innovation and entrepreneurship as well.

Policy reform and empowering institutional organization are also of great importance. Establishing sound policies to promote an enabling environment for business and investment is undoubtedly pivotal, and this includes strengthening intellectual property rights, legal frameworks, and political stability, as they are essential elements for attracting foreign investment and promoting economic growth.

In addition, integration between trade and investment policies is essential for promoting trade, growth, social well-being, and consolidating the principles of solidarity and common interest. The Arab region can benefit from international frameworks, such as those provided by the Islamic Development Bank Group, to enhance economic integration, in addition to accelerating the African Continental Free Trade Area (AfCFTA) to raise the level of cooperation and integration between African countries. This provides a path to building more resilient and diversified economies.

There is no doubt that Arab-African economic integration represents a unique opportunity to create a new model of economic cooperation, and paves the way to economic diversification, technological progress, and sustainable development. Such partnerships can set new standards for regional and international cooperation, and bring about positive change in the balance of global economic power that ensures inclusiveness, fairness, competitiveness, and new horizons for cross-border innovation and cooperation. Achieving this vision requires a commitment to long-term strategic cooperation, which has gone beyond being a purely economic necessity and has become a strategic necessity to play a more important role in the global economy.