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Carole Biau
Director, Center for Financial Markets
Africa and Capital Markets and Emerging and Frontier Markets and Global Economy and Regional Economics
Carole Biau is a director at the Milken Institute Center for Financial Markets, where she launched and now leads the IFC-Milken Institute Capital Markets Training Program. Hosted at the George Washington University, this program offers an accredited certificate in capital markets development to mid-career policymakers from developing countries. So far, 39...
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Regional Integration 2.0—Getting the Details Right in Eastern African Capital Markets

By: Carole Biau
January 24, 2018

A well-known Kenyan proverb alleges that “sticks in a bundle are unbreakable.”  As often as this proverb is true for individuals, organizations, and countries around the world, it’s surprising how easily we lose sight of it.

In the financial space alone, regional collaboration and integration across neighboring countries has enormous potential. It can stimulate intra-regional securities trade and investment, providing domestic firms with more competitive funding sources and a greater range of investment options for individuals and institutional investors. By creating deeper and more liquid markets, financial integration can also support capital investments in physical and social infrastructure and give companies across all sectors plenty of market growth opportunities.

Countries have long realized that creating the rules for a positive-sum game was in their common interest, despite the political difficulties in doing so (including the temptation to compete instead). The projected benefits of regional economic cooperation helped drive the establishment of powerful entities like the United States and the European Union. A constellation of economic blocs has followed in other regions, from the Association of Southeast Asian Nations (ASEAN) in Asia to the Common Market of the South (MERCOSUR) in Latin America. Africa has set up over a dozen different groupings, including eight regional economic communities and several sub-groupings for customs unions and monetary zones.1

Yet in many ways and especially in Africa, the multiplication of regional groupings has been counterproductive. Especially when they belong to more than one bloc, countries have trouble keeping up with—let alone taking to heart and meaningfully contributing to—the goals of each regional agenda. For example, by 2015, the Democratic Republic of Congo, which is a member of four different regional economic communities, had only ratified two of the 56 protocols and amendments of the Southern African Development Community (SADC).2 Working together, especially across borders, takes a level of dialogue, trust, and mutual effort that many countries are stretched to provide. Although most African countries’ national development plans list regional integration as a priority, in practice governments naturally grant precedence to shorter-term domestic concerns.

As a result, regional integration efforts frequently end up curbing the level of ambition and instead go for the least common denominator. Countries find themselves sending junior-level delegates to regional meetings where questions of protocol, cost-sharing, and metrics are discussed ad nauseam—but where the individual agency, creativity, and vision that put these processes into motion in the first place has become hard to find. In fact, regional economic integration has been a buzzword in international development circles for so long, that today it evokes skepticism and wariness about as often as it does enthusiasm (the Eurozone crisis and Brexit have not helped in this regard).

Having generally made faster headway than other groupings, the Eastern African Community (EAC—Burundi, Kenya, Rwanda, South Sudan, Tanzania, and Uganda) is often flagged as a model for others to follow on the continent. Admittedly, the EAC’s small size (with only six members as compared with 15 in the SADC) has made its job easier. Yet, progress even at the EAC level has been difficult. A recent standstill over the establishment of common financial market infrastructure has been particularly daunting.

So, is this really a losing battle? It would be a pity, because regional integration, if done effectively, is the most promising solution to the market scale challenge faced by many small African economies. This is especially true in the area of financial markets. The relative ineffectiveness of regional economic communities to date, and the resulting policy fatigue, should not discourage the most determined countries. Instead, it may be time for more creative approaches backed by strong leadership.

In a Milken Institute white paper published in January 2018, I explore the complex case of financial market infrastructure integration in the EAC. This is an instance where high-level policymakers have had to grapple with contractual details that threw a wrench in their common vision. The paper draws on the views and recollections of some of these policymakers—the current and former CEOs of capital-market regulators in three EAC member countries (Kenya, Rwanda, and Uganda). It takes stock of what went wrong and explores alternative options, with a focus on how to get the details right going forward.

Solving financial market infrastructure for the EAC region will not by itself make the ‘bundle of sticks’ unbreakable. Broader economic cooperation will remain challenging as countries continue to juggle competing domestic and regional priorities. But, hopefully this case can provide some momentum and next steps for the EAC, as well as fresh ideas for other regions attempting to move in the same direction.

1 Regional economic groupings in Africa include (among others): the Economic Community of West African States, the West African Economic and Monetary Union, the West African Monetary Zone, the Conseil de l’Entente, the Mano River Union, the Community of Sahel-Saharan States, the Economic Community of Central African States, the Economic and Monetary Community of Central Africa, the Common Market for Eastern and Southern Africa, the Nile Basin Initiative, the Southern African Development Community, the Southern African Customs Union, the East African Community, the Arab Maghreb Union, the Intergovernmental Authority on Development, and the Cross-Border Initiative in Eastern and Southern Africa and the Indian Ocean.

2 Musser, Ryan (2015) “Can Regional Integration Help Africa Reach Its Economic Potential?” Center for International Private Enterprise.


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