The case for capital market integration in West Africa

Integration is very topical. Every day we see news items detailing its results, effects, challenges, and benefits. In the successful examples we see compelling advantages in a single market for goods, services and capital. On the other hand the interconnectedness of countries in an integrated market raises the risk of contagion where bad news in one country quickly spreads to others and threatens the entire system. Overall however, the benefits of integration far outweigh the costs and that is my central message today. It therefore makes perfect economic sense for us in West Africa to push for integration because it opens up a vista of opportunities for our country and the entire Region. Apart from the opportunities however, there are challenges to be surmounted including gaps in infrastructure, technology, culture, regulatory regime and so on. What usually determines the degree of success of any integration initiative is the approach to tackling these challenges.

Benefits of Economic Integration

Economic integration is widely acknowledged as one of the greatest contributors to global economic growth. It is important because it does not only create larger markets and new trading opportunities but also increases competition and competitiveness. Apart from the economic benefits, regional economic integration certainly plays a crucial role in promoting peace and stability within a region. It also increases the bargaining power of participating states (acting as a block) in international negotiations.

The European Example

The European Union (EU) is considered as the most advanced experiment in regional integration having achieved a near-perfect economic integration since the 1990s. It is the largest market in the world with combined population of over 500 million inhabitants and nominal GDP of about $17 trillion. The EU’s approach to integration has been through a standardized system of laws and policies that apply across all member states covering areas such as trade, technology and agriculture.

Since the beginning of the global financial crisis, the EU has focused on promoting financial integration through the Markets in Financial Instruments Directive (MiFID). MiFID, which went into effect on 1st November 2007, now covers all 28 EU member states alongside Iceland, Norway and Liechtenstein. It aims not only at full integration of European financial markets but also increasing trade transparency, competition and consumer protection in investment services. It has been estimated that the implementation of MiFID will generate millions of additional trades annually.

East Asia

In East Asia the approach has been to focus on harmonizing processes and instruments as well as adopting shared technology. The Association of Southeast Asian Nations (ASEAN) has championed economic integration across its 10 member states, making up a larger population (600 million) than the EU with aggregate GDP of over $2.6 trillion. ASEAN aims to achieve a single market by 2015 and has facilitated or is facilitating free-trade agreements with countries including China, the United States, Japan, South Korea and the EU. Perhaps more interesting for us here is their attempt to integrate the financial markets across that region. The ASEAN Capital Market Forum leverages technology to link the 3 stock exchanges in Malaysia, Singapore and Thailand which make up over 70 percent of trades among the 7 ASEAN stock exchanges. Within the combined market of over 2,200 listed companies and a market capitalization of US $1.4 trillion, they have successfully pushed for mutual recognition of disclosure standards, collective investment schemes and anti-money laundering provisions.

Some African Examples

Here in Africa, we have a number of good examples to learn from as we push for greater economic integration within our Region. The East African Community which was revived only in the year 2000 has made significant inroads surpassing the level of integration we have achieved in West Africa. They already have a common market for goods, labour and capital. They have a customs union implementing the common external tariff and have expanded free trade areas through agreements with the Southern Africa Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). Although East Africa is much smaller than West Africa, it still sees immense opportunities through financial integration championed by the East African Securities Regulators Authorities (EASRA) through information sharing, mutual assistance and cooperation.

We have a lot to learn from our francophone counterparts in Africa. They have a harmonized body of business laws under the Organisation pour l’Harmonisation en Afrique du Droit des Affaires (OHADA) covering 17 African countries. Some of them within Central and West Africa have gone steps ahead to set up a longstanding monetary union whose successes and challenges we can learn from. The Union Economique et Monétaire Ouest-Africaine (UEMOA) which has belonged to the Communauté Financière d’Afrique (CFA) has established a common accounting system, conducts periodic review of macroeconomic policies based on established convergence criteria, a common legal and regulatory framework for the banking system as well as an established stock exchange – the Bourse Régionale des Valeurs Mobilières (BRVM).

Arunma Oteh