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Regional Integration and Debt in Africa: A Comparative Report of Africa’s Regional Groupings
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5. Problems of Regional Integration Associated with Indebtedness
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The lack of political will to establish effective and dynamic supra-national institutions and to implement agreed treaties and protocols remains Africa’s handicap to meaningful integration that carries the potential to fight external indebtedness as debtor cartels or regional blocs.
Monetary unions, and particularly payment mechanisms, play an important role in reducing debt. Terms of payment, especially credit terms, are the primary source of commercial debts and bad debts within RECs. By adopting, a single currency or a common unit of account to settle commercial debts, regional integration could directly and positively affect the debt situation of member countries.
The absence of a clearinghouse or payment mechanism has made trade difficult for most RECs and their members18. The problem of financing transactions has partially been solved by the creation of a Clearing House in Central Africa (CCAC) and a Payment Union in North Africa. In Central Africa the impossibility of clearinghouses paying back creditors has resulted in informal trade using a parallel rate between the currencies of the region and foreign currencies, causing depreciation of local currencies. This depreciation contributes to increases in the price of importation vis-Р°-vis national currency and consequently escalating foreign debt. The transaction systems have been far from proper functioning. A significant portion of the little available foreign currency has been devoted to debt servicing. In SADC, Countries such as Lesotho and Mauritius have continued to rely on taxes on international trade for foreign exchange earnings and find it very difficult to cut customs duties in the name of regional integration.
Regional bodies in Africa have strong policy positions that their programmes should be funded primarily from member states’ own resources, with particular emphasis on involvement of the private sector. Shockingly though, most if not all have continued to rely heavily on donor funding, which is unhealthy in light of the prevailing debt situation in these regions. In 1996/97 in SADC only 25 to 30 percent of funding for its Programme of Action was sourced locally, implying about 70 to 75 percent was sourced from external sources (IGD 2001). This had risen to about 80 percent by 1998/99. Foreign funding creates debts that, if not managed well, turn into a debt trap19.
Most RECs, jointly and severally, lack an explicit regional debt management system and debt management is generally viewed more as a national issue than a regional one, and even then in the very narrow sense of debt recording. In most of the African countries, the database for policy making on debt issues is inadequate because the chief financial agencies of governments do not communicate effectively with each other. Different functions of debt management are performed by different government agencies that sometimes overlap each other or perform the same functions for different ministries.
The role of external forces in Africa’s regional groupings has tended to be negative to the whole concept of regionalism. A case in point is the recent growth in the partnership between South Africa and the European Union that is likely to disadvantage regional economic integration in SADC. It has been linked to the uneven pace of development between South Africa and the rest of the region that is expected to present problems in terms of distributing the costs and benefits of integration. Zimbabwe for instance, due to its foreign exchange problems, is heavily indebted to South Africa’s Eskom for electricity supplied.
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Footnotes:
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Saidi Mohammed (2002) Regional Integration and Debt, A Study report to AFRODAD, Harare.
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Tekere Moses et al (2002) Regional Integration and Debt in Southern Africa, A Study Report to AFRODAD, Harare.
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