The convergence and stabilisation of macroeconomic policies within a region creates a healthy financial climate that attracts cross-border investments.
The degree to which a country is macroeconomically coherent with its neighbours helps investors to calculate the value and potential of their investments.
To measure macroeconomic integration, ARII uses three indicators:
- The regional inflation differential measures the difference between a country’s inflation rate and the inflation rate targeted by the region. In cases where country data is not available, the indicator uses the minimum positive rate (that is, the lowest non-negative inflation rate) of the region.
- The regional convertibility of currency indicator evaluates the ease with which foreigners and businesses can transact. More specifically, it counts the number of countries within the region with which a country shares a common currency or with whose currency its own currency is convertible.
- For lack of comprehensive data on regional foreign direct investment, the number of bilateral investment treaties in force is used as a proxy for the scope of cross-border capital flows. This number is net of treaties that have not been ratified and treaties that have been terminated.
The continent’s average score on macroeconomic integration is moderate. Heterogeneity across countries is great, with a gap of nearly 0.8 (out of 1.0) between the most and least integrated countries.
This result is mainly driven by exorbitant inflation in some countries. Adhering to sound, coordinated fiscal and monetary policies is a priority if the continent is to experience economic stability. A healthy economic climate would increase cross-border investment and macroeconomic integration.
Morocco is the most integrated country in Africa on the macroeconomic dimension. It ranks far ahead of the runner-up, Mauritius. These two are followed by Egypt, Rwanda, and Mali.
The top performers tend to be countries whose currencies are easily convertible to other currencies. This is the case for the Rwandan franc and the Moroccan dirham. Egypt, Morocco, and Mauritius also have the greatest number of bilateral investment treaties presently in force, another factor that boosts their position on this dimension.
The two least macro-economically integrated countries in Africa are South Sudan and Angola, which score near zero. Other low-ranking countries are Zambia, Malawi, and Eritrea. South Sudan has African’s most unfavourable inflation rate and no bilateral investment treaties. Other countries whose currencies are not convertible also rank poorly.
Countries’ Scores and Rankings on Macroeconomic Integration
ARII uses a 95 percent confidence interval from the mean to identify countries’ performance as low, average, or high. Under linear conditions, a score below 0.333 is classified as low, a score between 0.334 and 0.667 is classified as average, and a score above 0.668 is classified as high.
In this graph, a country’s “All Africa” value refers to how well the country scores compared to all other African countries, not just compared to the other members of the regional economic community/ies to which the country belongs.