The national currency of Nigeria, the naira, is under tremendous pressure amid the crisis in the financial sector after the sacking of key bank executives and the suspension of trading in their shares., a photo by Pan-African News Wire File Photos on Flickr.
Why Africa’s financial integration is difficult
January 06, 2014
By Tony Navah Okonmah
Nigerian Vanguard
There have been talks of Africa’s financial integration for more than two decades, but there aren’t any concerted, credible and encouraging signs that Africa is nearing its goals and objective of financial integration apart from a few disjointed accounts from various analysts’ opinions on Africa’s regional financial integration achievements.
Analysts have argued that African regional economic communities (REC), recognising the need for pooling of financial resources began establishing sub-regional capital markets in an attempt to solve the problem of their fragmented capital markets.
Realising the fact that there is a strong relationship between developed financial markets and economic growth, African regional economic communities (REC) saw the need to integrate and consolidate financial markets as a vehicle for promoting economic development on the continent.
REC also believed that financial integration would enhance, promote efficiency and productivity and facilitate the flow of information. Indeed, regional financial integration is seen as the only platform for establishing stronger links with financial systems and capital markets in more developed countries and economies.
But, has REC been able to establish this stronger links or has it the capacity to establish this stronger links with financial systems and capital markets in more developed countries? Kuper, S. (2013) argued that since 2000, Africa has been going off in different directions.
President Jacob Zuma, the South African president, in a speech while speaking on issues of toll roads recently lends credence to Kuper’s claim, and it is one of the reasons why Africa’s financial integration has proved difficult.
“We can’t think like Africans generally, we are in Johannesburg. This is Johannesburg. It is not some national road in Malawi”. If indeed, the belief of REC is to enhance, promote efficiency and productivity within regional communities, I do not see how Zuma’s statement meets this objective.
Ironically, South Africa and Malawi are both members of the same African regional economic community called Southern African Development Community (SADC) where South Africa dominates the region economically, accounting for 60% of SADC’s total revenue and about 70% of SADC’s GDP.
Evidently, South Africa has a critical role to play in the regional financial integration of that region. Therefore, such careless utterances of a high political figure like the president of South Africa which ridicules the economic and social development of a member country will not promote the desired cooperation that encourages positive and strong financial integration of that region and Africa as a whole.
Analysts believes that financial integration involves a process whereby a country’s markets become linked or integrated with those of other countries or the rest of the world. Therefore, in a fully integrated market, all forms of barriers are eliminated to enable foreign financial institutions to participate in domestic markets.
This is why it is argued here that careless statements like that of President Zuma should not be tolerated. It hampers development of the SADC region and Africa by extension.
Zuma should understand that whether a country, region or continent “chooses to integrate its financial markets formally or informally, it needs to create an enabling environment that would attract foreign participation” and his statement on Malawi’s development processes doesn’t create an enabling environment for the financial integration of the SADC and Africa as a continent.
It is time our African leaders demonstrate that Africa as a whole is their place and show love and respect for one another. Whether you are from Malawi or Nigeria or Ghana or Somalia or Cameroon or Senegal or Gabon or Kenya, we must look out for the things that promote the interest and common good of one another.
Our leaders must stop playing this superiority and inferiority game that divides the continent and by extension transcends down to the various nationals of the various countries. Africans must learn to leverage one another.
We have seen that why regional economic communities have not been able to harmonise the standards and regulations of governing financial markets and to create a larger central African financial market known as African Economic Community (AEC) that would support Africa’s regional integration agenda is due to such antecedents behaviours like the one exhibited by Jacob Zuma, the South African President.
Indeed, smaller African countries cannot achieve such economic impact by themselves unless they are linked up through the financial markets of the regional economic markets. Malawi should be encouraged to develop further its infrastructure within the SADC region and not ridiculed.
Zuma should focus more on the three benefits of financial integration which are the primary aim of the REC financial integration agenda.
These three benefits are (1) Risk sharing – South Africa should share its risk of expertise and know-how with Malawi that would boost specialisation in production.
(2) Improved capital allocation – South Africa should encourage better allocation of capital and support the smaller and poorer countries within its region to remove impediments to trading of financial assets and flow of capital.
(3) Economic growth – South Africa’s deeper financial integration can encourage and stimulate stronger economic growth for its region by making financial resources available for economic activities for smaller member countries like Malawi.
Germany did this for participating EU member countries like Greece, Spain and Italy during the recent financial crisis that engulfed the EU.
Tony Navah Okonmah, a financial and economic analyst, wrote from London.
- See more at: http://www.vanguardngr.com/2014/01/africas-financial-integration-difficult-2/#sthash.s8jOa46U.dpuf
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