AfDB pushes for uniform policies in Africa’s trade blocs

The African Development Bank (AfDB) is pushing for uniform fiscal and macro-economic policies in the 19 states of eastern and southern Africa even as they grapple with multiple trade tax structures and overlapping membership.

In a report made public last week, the bank calls for an economic policy convergence to boost fiscal surveillance at the regional and national levels so as to set the stage for a monetary union in the Common Market for Eastern and Southern Africa (Comesa) region.

“Fiscal convergence is essential to Comesa’s macroeconomic convergence programme, and is a bridge between monetary and trade integration programmes,” AfDB president Donald Kaberuka said in the report.

The report, titled Facilitating Multilateral Fiscal Surveillance in Monetary Union Context with Focus on Comesa Region, was commissioned by the Comesa Secretariat two years ago.

It proposes a roadmap for fiscal convergence in a programme that runs up to 2018 but offers no specifics that can connect the dots between trade and monetary integration.

By 2015, the 19 countries are supposed to maintain an overall budget deficit to GDP ratio of four per cent, an annual average inflation rate of not more than three per cent, and keep external reserves of at least five months of imports.

Over the same period, the countries are expected to have eliminated central bank financing of budget deficits, the report recommends.

Comesa is the single largest market for Kenya’s goods, accounting for 35 per cent of the Sh511 billion that Kenya exported to various parts of the world in 2011.

Under the monetary union, the 19 member-states are expected to come up with a single currency, eliminating the current exchange headache.

This may however prove to be a long shot. The 19 countries have overlapping memberships. This is expected to put fiscal and macroeconomic convergence to the test as the two blocs pursue different priorities, being as they are at different stages of integration.

The Comesa region launched its Customs Union in 2009 but slow implementation of common external tariff structures has seen member states get into numerous trade disputes with firms in the region.

But despite slow integration, the push to integrate Comesa members’ macro-economic policies is buoyed by the high number of specialised institutions that it has set up especially after the launch of the free trade area in 1994.

These include the PTA Bank and PTA Reinsurance companies both headquartered in Nairobi, the Khartoum-based regional Court of Justice, a clearing house based in Harare, and the Regional Investment Agency (RIA) in Cairo.

“Progress has been made in the implementation of the Comesa Monetary Cooperation Programme especially in the establishment of the free trade area, the regional payment system, reduced inflation and budget deficits,” says the report.

However, much remains to be done particularly in the area of fiscal policy convergence that is pivotal for macroeconomic convergence.