When capital flows more freely across Africa, investment increases and finance is allocated where it can generate the most productivity.
In addition, the continent’s investors get higher returns. In turn, as transaction costs of doing business fall and financial institutions work more effectively, companies, micro-,small and medium-sized enterprises and start-ups will benefit.
Financial integration has been promoting knowledge and technology transfer and greater innovation. The continent’s heavyweight economies to the small-sized players can make inroads from making financial cross-border flows smoother and reach further. Forward-looking island nations and landlocked countries have already blazed a trail on financial services.
The Abuja Treaty sets out the continent’s integration pathway and puts monetary union as a key priority. Yet many of the Regional Economic Communities have not made their currencies convertible and coordinating macroeconomic convergence needs a greater push. As the global financial crisis has shown, being more capital-connected comes with a risk. More data, information and transparency build confidence among national authorities and financial institutions, as does improving regulatory frameworks, safeguards and supervision.
Lighting up Africa’s financial future
A series of actions can make a difference, including promoting banking across borders, increasingly outside of the regional financial centres; standardizing regional payments; putting in place multilateral fiscal guidelines; and joining up policy on inflation, public finance and exchange rate stability. In turn, the continent will see more predictable conditions for cross-border trade and investment to thrive and it will help to light up Africa’s financial future.
- Regional convertibility of national currencies
- Inflation rate differential (based on the Harmonized Consumer Price Index)
- ECOWAS is the highest performing REC on Financial and macroeconomic integration.
- Financial and macroeconomic integration has the lowest score overall among RECs with a 0.381 average.
- There are a total of 37 high performing countries across the eight RECs on Financial and macroeconomic integration.
- High performing countries on Financial and macroeconomic integration that are not high performers on regional integration overall:
CEN-SAD (Chad, Central African Republic, Guinea-Bissau), COMESA (Comoros, Djibouti, Rwanda, Libya), EAC (Rwanda), ECCAS (Chad, Central African Republic, Congo), ECOWAS (Niger, Burkina Faso, Guinea-Bissau, Mali, Benin), IGAD (Djibouti)