Transcript No Slide Title

ASSESSING REGIONAL INTEGRATION IN
AFRICA (ARIA III):
Towards Monetary & Financial
Integration in Africa
1. Introduction
The importance of Regional Integration
in Africa
Regional Integration - Vision of African leaders since early years of
independence. Several reasons:
•Creating a common market for the 53 individual African
should lead to economies of scale to make countries
competitive
•Wider trading and investment environment, inducing
backward and forward linkages
•A framework for African countries to cooperate in
developing common public goods: e.g. infrastructure;
peace & security.
Rationale for ARIA
Assessment of Africa’s regional integration agenda
on a regular basis to draw lessons for improving its
implementation
ARIA I was the first coherent and comprehensive
analyses on this integration process
Subsequent ARIA focused on thematic challenges
(ARIA II- Rationalization of RECs; ARIA III – Macroeconomic policy convergence, monetary and financial
integration )
ARIA IV, now in progress is focusing on the
important issue of enhancing intra-African trade.
Rationale for Macro-economic policy
convergence, monetary and financial
integration in Africa
Rationale for Macro-economic policy
convergence, monetary and financial
integration in Africa (contd)
The success of the integration process will require
economies of the constituent members that are
strong and stable
Macroeconomic stability implies lesser fluctuations
in output and employment, better overall price
stability, very low inflation on average, and low
variability
It also implies cultivating a fiscal discipline in terms
of government expenditure in relation to efficiency in
taxation to avoid excessive budget deficits
Rationale for Macro-economic policy
convergence, monetary and financial
integration in Africa (contd)
 Financial integration in terms of harmonisation of
money and capital markets would ease payment
systems and provide a primary source for medium to
long-term securities, which are essential for
investments
 Monetary integration, especially in terms of
monetary union, would remove exchange
uncertainty and transaction costs, and deepen the
integration process.
ARIA III HIGHLIGHTS
A.
Implementation of macro-economic
convergence criteria
The report shows that
RECs did better at controlling
inflation and budget deficits than they did at reducing
external debt ratios. Debt relief helped some countries in
improving on external debt targets
Budget deficits generally remain an area of difficulty
due to pressures on government spending (e.g on social
development)
Economic growth rates as an important convergence
variable are also generally encouraging across Africa
Implementation of macro-economic
convergence criteria (contd)
 Monetary unions tend to do better on meeting
macroeconomic policy convergence targets as they
tend to have more effective surveillance mechanisms
(e.g UEMOA).
 Though REC members are making tremendous efforts
towards sound macro-economic policy convergence,
challenges still remain on the path towards the ideal
situation
 We see little evidence in convergence of per capita
incomes. This is where support to poor economies in
catching up with richer economies in per capita
incomes will be necessary.
B. Financial integration
The environment for financial integration remains
precarious. There is general lack of financial depth as money
and capital markets are relatively underdeveloped, coupled
with a limited array of financial instruments
On the positive side, cross-border direct and portfolio
investments are on the upward trend, particularly in SADC
area as many stock exchanges are being established and
harmonisation of listing requirements and trading procedures
is taking place.
 There is however
only one Regional Stock exchange:
Bourse de Valeur Immobiliere (BRVM) serving UEMOA
countries
Financial integration (contd)
Community financial institutions have been
established in some RECs (e.g. BEAC &
BDEAC in CEMAC; PTA Bank & PTA Reinsurance Company in COMESA; EADB in
EAC; ECOWAS Fund and Ecobank in
ECOWAS; BCEAO & BOAD in UEMOA;
Maghreb Bank for Investment and External
Trade in UMA.
C. Monetary Integration
CEMAC and UEMOA are already monetary
unions in terms of having a single currency. This
has been part of their structure from the outset.
The rest of the RECs have plans to become
monetary unions within a span of 5-10 years.
Monetary union cannot be achieved overnight.
As it implies deeper level of integration, greater
efforts are required towards achieving a single
market in each REC.
Monetary Integration (contd)
 That implies a fully integrated market with
total free mobility of people, labour, goods,
services and capital.
 The monetary union with a single currency
would thereby reinforce the single market.
One market needs one money.
 In the context of the African Union, there are
plans to establish in the not too distant
future, the African Central Bank, the African
Monetary Fund and the African Investment
Bank.
D. Conclusions
 The empirical analysis shows strong evidence
of the
convergence of macroeconomic stability indicators for
SADC, COMESA, ECOWAS, CEMAC and UEMOA
 The
income convergence analysis however indicates
very little evidence that the countries in the various
RECs are converging their capita incomes, except those
in UEMOA
The integration policies would have to address the lack
or slow pace of convergence in per capita incomes.
Unless there is a major structural shift, it will take
decades for most RECs economies to converge and
thus attain the expected outcomes of regional
integration initiatives in Africa.
Conclusions (contd)
 An important stepping-stone to monetary
unification is monetary harmonization. But
two factors make this process difficult
1.
Africa has a host of local currencies, most of which are
non-convertible within and across RECs. And different
countries have different exchange rate regimes.The only
exceptions are UEMOA and CEMAC, which form a single
currency zone (CFA), and to some extent the CMA, where
the rand is used side by side with domestic currencies
2.
RECs need to redouble their efforts towards a single
currency. COMESA, for example, could build on the
experience of the EAC, where the Kenyan, Tanzanian,
and Ugandan shillings are now mutually convertible,
paving the way for a common currency in the near future.
Thank you