“Africa has much to learn from Europe about how not to go about financial integration. The experience of the European crisis and the euro is a good lesson to us in Africa about the problems in terms of financial integration and, from a policy perspective, in terms of the issues that you need to think about,” said Roy Havemann of the South African National Treasury. He was speaking on financial integration on Tuesday, October 28, the second day of the eighth African Economic Conference (AEC), held in South Africa, on regional integration in Africa.
The global financial crisis highlighted structural macroeconomic imbalances and inappropriate financial system regulation, in terms of regulators and regulations. It illustrated the need to respond by means of traditional macroeconomic and financial sector tools, such as interest rates, capital reserve requirements and asset risk-weights.
Global regulatory priorities were drawn up from the post-crisis G20 summit, a few of the most important include: the adherence to international standards, ensuring that global liquidity is more robust, strengthening accounting standards and capital frameworks for banks, as well as widening oversight of the financial system.
Speaking on financial integration, Havemann noted that all of its components have to be considered for it to be successful, and these include: financial regulation integration, fiscal integration and lastly monetary integration.
Financial integration is defined according to the International Monetary Fund (IMF) as a process that allows banks within a country to serve customers in other countries, allows access to more funding and a greater variety of products, and provides better investment opportunities to individuals.
While financial integration mobilizes funds and encourages private sector development, the increase in inter-border activity can also lead to numerous complexities.
According to Havemann, in terms of regional integration, banks need to be more resilient, the too-big-to-fail mentality needs to be scrapped and shadow banking needs to be transformed.
Looking ahead, he said, “Shadow banking is a key priority for the region [Southern African Development Community] for 2014. Quite a difficult thing for regulators has been to take into account how to mitigate risks in banks’ interactions.” Furthermore, regulatory cooperation needs to be enhanced. “We need timely and consistent implementations of new standards across various jurisdictions.”
However, the greatest challenge in Africa remains financial inclusion and widespread access to reliable financial services, which will allow individuals to save money and manage their savings, obtain loans, purchase assets and insure themselves against unforeseeable circumstances.
Regional integration will have immense benefits for Africa and financial integration is an appropriate place to begin; however, it needs to be sequenced adequately, international standards need to be adhered to and there needs to be a balance between growth and stability, he concluded.