Role of Regional Financial Integration in Promoting Growth, Development and Poverty Reduction in Africa

LAGOS (Capital Markets in Africa) – Regional financial integration refers to a process, market-driven and/or institutionalized, that broaden and deepen financial links within the region. At the very least, this process involves eliminating barriers to cross border investments and differentiated treatment of foreign investors. Further deepening of financial links can take the form of harmonizing national policies, laws, and institutions. Over time, cohesion of regulatory frameworks, operational structures and information systems, and convergence of prices and risk assessment mean that national financial markets within the region effectively function as one. Taking this concept further, a group of countries may set up a regional bond or stock market, distinct from and potentially coexisting with national markets, with the specific intent of pooling resources, risks, and returns. Whatever form they take, Regional Financial Integrations (RFIs) have a certain minimum set of prerequisites: currency convertibility and payment system integration to reduce settlement delays, information and communication infrastructures and removal of legal and regulatory barriers.

Most African countries are still at a relatively early stage of development and financial integration is low and global banks have a bigger footprint than regional banks. However, there is a great drive by all major regional integration initiatives in Africa, towards liberalization of inter and intra-regional flow of goods, services and capital which are beneficial for growth. In view of this, many regional organisations in Africa are in the process of being converted to a Common Market with “free movement of goods, services, investment, skilled labour, and freer flow of capital.” With the advent of CAFTA there is also scope for further regional trade liberalization, with potentially important benefits for growth, employment and poverty reduction. Typically, enhancing trade integration requires a high degree of financial integration,  in order to boost growth, employment, financial inclusion and poverty reduction.

The objective of this paper is to provide requirements for promoting safe RFI in Africa. The paper is organized as follows: Section 1 reviews the benefits of RFI. Section 2, review impediments to and risks from closer financial integration.   Section 3 discusses some experiences of financial integration in Africa.  Section 4 presents some lessons that could be drawn from successful European experiences in establishing RFI. Section 5 provides a generic roadmap for achieving RFI in Africa. Section 6 provides a brief conclusion.

An extract from the INTO AFRICA March-April 2020 Edition: X-Ray on Africa’s Fundamentals. The article is written by Ibrahim Abdullahi Zeidy, Chief Executive Officer of the COMESA Monetary Institute and to read the full article, please download by clicking: INTO AFRICA PUBLICATION: MARCH-APRIL 2020 EDITION.

Contributor’s Profile:
Mr. Ibrahim Abdullahi Zeidy is the current Director of the COMESA Monetary Institute. He coordinated the setting up of the COMESA Monetary Institute. Previously, he worked as a
Senior Monetary Economist at the COMESA Secretariat, in Lusaka, Zambia for 11 years and as
a Director of Research in the National Bank of Ethiopia which is the country’s Central Bank for 6 years. In both institutions, he worked as a researcher and coordinated research activities. As a Director of  COMESA Monetary Institute he also organised many knowledge-sharing workshops on monetary and financial integration issues.

In his current role, Mr. Zeidy is responsible for the implementation of the COMESA Monetary
Cooperation programme which is aimed at ultimately achieving the COMESA Monetary
Union.Mr. Zeidy has M. Phil Degree in Monetary Economics from Glasgow University, with about 30 years of experience in macroeconomic policy and financial sector issues. He participated in many international and regional conferences and workshops.