A lack of political will is a significant inhibitor to Africa achieving the Holy Grail goal of integrated markets and trade, a high-level international forum heard. In the absence of policy and regulatory direction from government leaders, Africa’s true economic potential will remain stymied unless business leaders and investors take the lead, experts said.
Speaking at the panel discussion on the future of Africa’s capital markets at the World Economic Forum on Africa in Cape Town, Barclays Africa CEO Maria Ramos said economies across the continent stood to gain enormously from market integration.
“Frankly, and I know it’s always controversial when you say it, but it actually takes political will to get this done. If you have the political will you can get a lot of this stuff done. You cannot get the rules of the game harmonised without getting the people who make these rules around the table. So it starts with getting the political will and then getting the other actors around the table,” she said.
Presenting the case for the successful integration of markets, John Rwangombwa, governor of the National Bank of Rwanda, said the East Africa Community (EAC) member states of Rwanda, Uganda, Kenya, Tanzania and Burundi had shown it could be done.
“We are not going to combine them into one capital market, but we now have four capital markets that we are linking by harmonising our regulatory framework,” he said. “We are also linking the infrastructure, the depository and trading platforms and we already see each other as one market.”
The frameworks to make this level of integration possible has been driven by people such as Rwangombwa in central bank positions who have the mandate and authority to effect such change. The cross-market trading capabilities have also helped them to address one of the most pressing problems for markets across the continent: size, and liquidity.
In an interview with M&G Africa, Kevin Gallagher, Thomson Reuters’ head of Financial and Risk for Africa said that it was acknowledged that the enhancement of capital markets in the region could fuel investment.
“There is a real appetite for countries to raise and manage their funding domestically and for public-private partnerships as well. What that is fuelling is growth in the fixed income markets because there is not enough liquidity in the equity markets. But in the major economies there is a growing fixed income competency in debt issuance to fund infrastructure.”
The next step in unlocking the power of integrated markets in East Africa is the memorandum of understanding signed between the EAC members on currency compatibility. The age-old practice of defaulting to the dollar for cross-border or market trades adds unnecessary complexity and costs that further hamper the effectiveness of regional trade.
As successful as the EAC initiative has been, participants in the panel discussion were quick to acknowledge that replicating that success across the continent would take some doing, and lots more patience. The European Union was held up as an example of a model that was initially also considered laudable, but fraught with some serious hurdles.
Even 20 years since it’s official formation the union is still challenged by doubt and vested interests. One of the lessons African can take from this experience is that there are clear economic benefits, but marshalling continental efforts is going to demand serious commitment and perseverance.
This was highlighted in a second panel discussion WEF Africa that debated the future of trade in Africa. The Continental Free Trade Area (CFTA), championed by the African Union (AU), featured prominently.
The AU’s commissioner for trade and industry, Fatima Acyl, expressed her confidence that this would become reality by the self-imposed 2017 deadline. She said the high-level trade committee composed of eight heads of state meant that progress was being monitored, reported and acted on every six months.
She said another reason to be confident was that the CTFA would not be starting from scratch. This is due to a phased approach that builds on existing co-operation structures such as Economic Community of West African States (ECOWAS), East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA).
The three last-named bodies are, in fact, launching the Tripartite Free Trade Area (TFTA) on June 10, 2015. This comprises 26 countries, representing 57% of the continent’s GDP, and is close to half the number of the 54 countries that will make up the CTF.
Acyl added that countries should not feel compelled to join the CFTA until such time that they felt they were in a position to join and take advantage of the initiative.
Yonov Agah, the deputy director-general of the World Trade Organisation said that preparedness to join the CFTA required countries to transform a number of critical factors and frameworks.
These include trade policies, infrastructure to support trade, trade policy governance structures that take into account the interests of the business and private sector and, particularly, the country’s competitive advantages.
“At the end of the day it’s about how a country and region like Africa manages the interaction of these external and domestic factors that would provide the frame as to how you benefit,” said Agah.
Jean-Louis Ekra, president and chairman of the board of the African Export-Import Bank suggested that one of the biggest challenges was to shift economies away from their dependence on commodities.
“Total African trade has grown tremendously over the past 20 years. The unfortunate thing is that it is still largely dominated by commodities, so there is very limited value addition locally and limited retention of value of these exports.
“The other factor is that Africa is a continent that trades very little with itself. We have taken giant strides - it was around 7% and it is not 12-13% - but still it is still quite low compared to Asia which is about 55% and even Europe that is about 70%.”
He said that the financial services sector was one that had shown an ability to grow cross-border trade and transactions and was leading the way. While political and government leaders needed to drive intra-Africa trade through policy revisions, he said business leaders were as important, if not more, to leading this revolution.
“If you just unleash the business community, they will do it. What is slowing the business community to do business across the continent are the authorities. The business people don’t have a problem with borders, they will just go where they can make money.”
This pragmatic approach to realising the continent’s trade potential is probably what is needed most. Walking the corridors of the Cape Town International Convention Centre during WEF Africa it was evident that this energy and determination certainly exists.