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Regional monetary integration is achievable

Central bank governors and representatives from 11 Common Market for Southern and Eastern Africa (Comesa) believe that achieving monetary integration is possible and that this could be enabled if member states have larger and deeper financial markets.  

Africa has been battling with the idea of monetary integration for years amid policy coordination limitations and challenges in setting up regional models in which both benefits for members and penalties for non-compliance are sufficiently substantial to ensure continuing cooperation.

Regional monetary integration entails the establishment of a fully-fledged monetary union replacing members’ national currencies with a single currency similar to what the European Union has done through the euro.

The model encompasses the setting up of a single central bank to pursue a single monetary policy to the whole union. Experts say operationalising the model within the regional economic bloc should be buttressed by the establishment of more competitive banking sectors, stronger institutional and regulatory environment and more transparent central banks.

In the latest Comesa report following the recent 23rd committee meeting of central bank governors and representatives held in Djibouti, bank chiefs agreed that for deeper regional integration to take effect, central banks have a huge role to play in bringing about the required transformation in the respective Comesa economies. Governor of the central bank of Djibouti, Ahmed Osman, was quoted urging fellow central banks in the region to put deliberate efforts towards the greater development of efficient, stable and healthy financial markets further calling for greater monetary integration.

While appreciating the success that has been achieved so far under the Comesa integration agenda in general and monetary integration programme in particular, Osman said: “We as central banks have a critical role to play in the implementation of the Comesa monetary integration programme to make the region a zone of macroeconomic and financial stability.”

Central bank governors and experts from Burundi, Djibouti, DR Congo, Egypt, Kenya, Malawi, Mauritius, Sudan, Uganda, Zambia and Zimbabwe attended the meeting.

Also present were chief executive officers of the Comesa Monetary Institute, the Comesa Clearing House, the Association of African Central Banks and a representative of the Trade and Development Bank.

Comesa secretary-general, Sindiso Ngwenya, who also attended the meeting, said the focus of Comesa was to contribute to the structural transformation of the economies within the bloc so as to foster overall economic development through trade facilitation and investment promotion.

These measures are expected to help create an enabling environment for trade growth, market integration, infrastructure development, industrialisation, small to medium enterprise development, regional industrial clusters, modernising institutional and regulatory policies, capacity development as well as resource mobilisation.  

Ngwenya added that the Comesa Monetary Institute and the Comesa Clearing House were important instruments for developing policy and institutional frameworks to enhance monetary integration in the region.

In a research paper: “Is Southern Africa Ready for Regional Monetary Integration?”, Carolyn Jenkins and Lynne Thomas from the Centre for the Study of African Economies at Oxford University attest to the general international interest towards monetary integration among other forms of integration and how these have spawned new regional initiatives in every continent.

While acknowledging concerns over poor frameworks towards monetary integration and the problem of spill-over effects and implications on policy coordination, Jenkins and Thomas, however, argue that African policymakers are still searching for broader economic cooperation as a solution to small markets and generally weak economies.

The recent launch of the African Continental Free Trade Area (AfCFTA) in Rwanda is set to add impetus to the monetary integration drive given its potential to make the continent the largest free trade area created since the formation of the World Trade Organisation.

With an estimated market of over 1.2 billion people and a gross domestic product of about US$2.5 trillion, the United Nations Economic for Africa estimates that the AfCFTA has the potential to boost intra-Africa trade by 53 percent by eliminating import duty and non-tariff barriers.

This is envisaged to enhance the continent’s capacity to interact on equal terms with other international economic blocs.

Speaking after officially opening the meeting, Djibouti’s Minister of Trade and Industry, Hassan Houmed Kamil, emphasised the importance of sustaining a favourable environment for stability, investment and growth. He called on member states to ensure predictability, transparency and accountability to achieve sustainable economic growth. Kamil also called for the speedy implementation of the regional payment and settlement system (REPSS) in order to achieve significant increases in intra-Comesa trade.

The meeting was preceded by a symposium on the roles of central banks in promoting sustainable growth. Both the meeting and the symposium underscored the importance of seeing the Comesa Free Trade Area, customs union and the common investment area succeed.

These initiatives are part of the drive towards industrialisation and the plan to establish a common market and economic community, which require greater monetary integration.