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Regional Integration and Debt in Africa: A Comparative Report of Africa’s Regional Groupings

4. Macroeconomic conditions and Debt
The longest-lived example of a monetary union is Africa’s fourteen members CFA franc zone, which has used a common currency pegged to the French franc since 1948. The zone helped to support Africa’s most successful market integration. Countries in conventional integration project do not enjoy additional protection against financial crises (especially debt crises/insolvency); neither with regard to the stabilsation of the exchange rate of their currencies nor with regard to the stabilization of capital flows do conventional integration schemes strengthen the economies of their member states12.

Regional integration in Africa will not be able to lessen the external debt burden, as macro variables remain unsustainable and characterized by wide fluctuations. There is a wide fluctuation across members of COMESA in terms of Real GDP growth. The debt to GDP ratio in the majority of the member states is above 100 percent. In a couple of countries it is about 50% and is insignificant only in Eritrea. There are countries where inflation is the worst (above 15%) such as Angola, Burundi, Madagascar, Malawi and Zimbabwe and good performers where it is contained below 10% (e.g. Comoros, Djibouti, Ethiopia, Uganda, Egypt, Mauritius). Low saving and investment rate also characterize COMESA members, which are invariably below 20% of the GDP. It seem logical to conclude that fiscal policy harmonization in the existing macro environment in COMESA is a daunting task13.

GDP growth in ECOWAS countries is quite impressive, above 3.5 percent and fairly stable. Inflation however is a problem across the REC. The inflation rate is very high reaching as high as 70 percent in some countries14. The level of monetization of the economy in ECOWAS is very low except in Cape Verde. In all countries the export to GDP ratio is about 10 percentage points above the import to GDP ratio. In some of them it actually is twice the size of imports. This internal and external balance problem seems to show itself not only through high level of inflation but also through the very high debt to GDP ratio - which invariably is above 50 percent and for most countries above 80 percent. This is reflected on the huge debt burden of the member countries.

The pattern of growth across SADC members is not uniform. In about six countries it is erratic, in two of them very bad and in another three it is very good. In the rest of the members (including South Africa which has a strong impact on the SADC members) there is a declining trend. Similar variation is also observed on the score of inflation. In majority of the countries it is below 10 percent. However, there are worst performers such as Angola, Malawi, Mozambique, Zimbabwe and Zambia where the inflation rate has reached above 100 percent15.

The SADC region is also characterized by very low level of monetization. The most notable form of monetary harmonisation in Southern Africa is the Trilateral Monetary Agreement between South Africa, Lesotho and Swaziland known as the Common Monetary Area (CMA), in which each country’s currency trades at par with the South African Rand. The Reserve Bank of South Africa implements monetary policy after consultation with the central banks of the other countries. Although the foreign exchange regulations and monetary policy reflect the insurance and dominance of the South African Reserve Bank, the monetary union has produced significant benefits, namely a high level of intra-CMA trade, investment creation and low intragroup indebtedness.

Saving and investment in SADC have distinct pattern, which reflects the level of development of member states. There are a few countries where the import and export shares are equal (again Botswana is an exception where its exports are larger than its imports). Each member country has distinct debt profile. The majority of the members (except Botswana and South Africa) have a huge debt burden. Although the Common Monetary Area between South Africa, Lesotho and Swaziland, and the use of the UAPTA in the Preferential Trade Area are promising signs, the levels of convergence in the region are very low. Far greater convergence would be needed for the successful implementation of a broader regional monetary union.

From the above case examples it can be concluded that, in most if not all, of Africa’s RECs the macroeconomic environment does not seem to be stable enough to handle external debt problems. The instability comes not only from domestic policy problems but also, and perhaps more importantly, from external shocks. Successful fiscal policy harmonization requires creating stable macro environment. This may be handled well by policy coordination at regional level that might result in a concerted effort to tackle external shocks including external debt. Internal and external balance problems that besieged African countries have left them heavily indebted to the Northern countries and their financial institutions to the extent of marring their regional efforts.

The convertibility of regional currencies or introduction of a common currency already achieved in some RECs (e.g. EAC and ECOWAS) has been found to encourage trade between member states because it obviates the need for the use of hard currencies. This can be expected to be further enhanced by the proposed introduction of a common continental currency by 2020. Such moves help alleviate foreign debt that comes through borrowing to address national budgets deficits. However, to optimise the benefits of a common currency, it will be necessary to increase actual levels of intraregional trade that are currently very low as a percentage of the total trade of the member countries. Monetary integration will remain a dream in the region until all RECs have a currency that all members identify with. Improvement of services such as intrastate banking would facilitate this process.

Financial integration is, without a doubt, the most advanced form of integration in the CEMAC zone. The major aspects of this have been the creation of the Commission Bancaire de l’Afrique Centrale (COBAC) to control the management of banks. COBAC oversaw the rehabilitation of banks in each country through the mobilisation of credit portfolios, rearrangement of the exportation account and recapitalisation, and the harmonisation of bank deregulation. This has rekindled confidence among savers and led to harmonisation of savings. In the process, external debt problems have been minimised in CEMAC16.

With the creation of CEMAC, the Banque des Etats de l’Afrique Centrale (BEAC) shifted from only handling the monetary policy of the zone to also overseeing the economic policy of member countries. At the level of monetary policy, the effect of harmonisation was to install a monetary zone, within which identical nominal interest rates were established.

In line with the convergence criteria (agreed levels of budget deficit, inflation etc), CEMAC aims to put in place a common indebtedness policy based on debt indicators. Better performing countries of the zone will serve as a reference. It will be a policy that permits debt control through debt terms that are easy, as they were in the 1970s. Countries of the zone should only borrow to foster expansionist policies, and within the limits of their capacity to repay. Thus, signals will be issued each time the indicators go above a certain threshold17. The application of this criterion should limit the type of external borrowing that aggravated the debt burden and will ensure the payback of projects financed with borrowed funds.

In East Africa, the EAC treaty enjoins partner states to work towards closer macroeconomic convergence. To operationalise this, the 2001-2005 EAC Development Strategy has urged member states to maintain market determined exchange rates and pursue policies that will achieve monetary stability and growth in order to lay the foundation for introducing a single currency. The current convertibility of the three currencies enhances their acceptability in each of the countries, obviating the use of scarce foreign exchange and releasing foreign exchange resources that could be utilized for debt liquidation.


  1. Balassa Bela (1961) Theory of Economic Integration, Hornewood (Illinois); Richard Erwin.
  2. Alemayehu, Geda (1997) `The Historical Origins of African Debt Crisis' ISS Working Paper, Money, Finance and Development Series No. 62, The Hague, The Netherlands.
  3. Joe Umo (2002) Regional Integration and Debt in West Africa, A study Report to AFRODAD, Harare
  4. Moses Tekere et al (2002) Regional Integration and Debt in Southern Africa, A Study Report to AFRODAD, Harare
  5. Ndjieunde Germain (2002) Regional Integration and Debt in Central Africa, A study report to AFRODAD, Harare.
  6. Ibid

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