Monetary integration and policy convergence can yield large payoffs for African economies. For the expected benefits to outweigh the expected costs, careful prioritiza-tion and design of instituprioritiza-tions are required. Integraprioritiza-tion results in common policies even in the presence of significant cross-country asymmetries. So conflicts are likely to arise over policy objectives and responses, allocation of seigniorage revenues, and equitable distribution of costs and benefits among participants. These conflicts can endanger the sustainability of the process, so the designs of conflict resolution mechanisms, redistri-bution schemes, and associated rules of enforcement are critical for success.
Several regional economic communities are trying to form a full economic union with a single currency. This requires appropriate supranational monetary institutions (a common
All regional economic communities should adopt common documents for cross-border transactions and clearance of cargo, vehicles, and people
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central bank) and a specific transition process. The common central bank should be inde-pendent from national governments, and its mandate should focus on monetary (price) stability, as other monetary unions have done. A transition phase should allow participat-ing countries to develop a macroeconomic policy mix consistent with the common mon-etary policy and to adopt such economic reforms as free movement of capital between countries and a fixed exchange rate system. Imposing convergence criteria would help these changes succeed.
Some of the regional economic communities have already started policy convergence to establish deeper monetary integration for the long term. Despite some progress, other factors have constrained their ability to achieve low inflation and fiscal stability.
Additional efforts to make convergence effective through the credible commitment of countries are therefore needed. Enforcement rules and penalties for noncomplying countries appear to be possible commitment mechanisms.
Integrating financial markets is another important source of economic benefits for African countries. Underdeveloped financial systems limit growth prospects by distorting the mobilization and efficient allocation of resources to profitable projects. Establishing regional capital markets, removing barriers to cross-border investments (current account convertibility, harmonization for regulatory frameworks), and forming regional financial institutions help countries overcome the constraints incorporated in an exclusively national approach to financial development. A regional perspective will facilitate the formation of a critical mass and the realization of productivity and efficiency gains in the financial sector.
Infrastructure
Transport, communications, and energy infrastructure; water resources development;
and food and agriculture are important components of regional integration.
Transport and communications. In transport and communications, member states should focus on:
• Implementing the Plan of Action for the Way Forward beyond the United Nations Transport and Communications Decade adopted by the 12th Conference of African Ministers of Transport and Communications in March 2002 in Addis Ababa.
Sufficient resources should be provided to implement policy reforms, increase pri-vate sector participation, build capacity for human resources and institutional devel-opment, complete priority infrastructure of the Trans-African Highway, include infrastructure development in poverty reduction strategies, establish a database to monitor performance, improve facilitation in selected priority corridors of regional economic communities, and develop the use of information and communications technology in operational and traffic management of infrastructure services in Africa.
• Giving priority to the NEPAD Short Term Action Plan.
• Fully liberalizing air transport without delay under agreements such as the Yamoussoukro decision, which comes into full effect in June 2002.
Some of the regional economic communities have already started to establish deeper monetary integration for the long term
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• Implementing the Regional African Satellite Communications project to ensure information and communications technology connections across Africa.
• Strengthening political commitment to implement subregional and regional agree-ments and conventions on infrastructure development in Africa.
Energy. Accelerating the implementation of power pooling and gas pipeline programs already initiated, such as:
• The West African Power Pool.
• The West African Gas Pipeline.
• The Zambia–Tanzania–Kenya Power Interconnector.
• The Kenya–Uganda Oil Pipeline.
Water. The transboundary nature of most African water resources makes regional coop-eration in water management a necessity. Such coopcoop-eration has occurred mostly through intergovernmental river and lake basin organizations. But the lack of strong political commitment, overly ambitious programs, limited resources (both human and financial), and political instability have significantly reduced the effectiveness of these organiza-tions. While revitalizing river basin organizations is an urgent priority, regional eco-nomic communities can play a role in coordinating sectoral policies, mobilizing funds, and building capacity for integrated water resources development.
To avoid the inefficiencies of duplication, the relationship between regional economic communities and river basin organizations needs to be rationalized along the lines sug-gested by the positive experiences of SADC and by the successful Nile Basin Initiative, both of which show how water sharing can contribute to regional integration.
Food and agriculture. Improving food security, increasing productivity in the agricul-tural sector, and expanding markets and trade call for regional and national action.
Regional economic communities have several roles:
• Establishing joint early warning systems for food security, pests, diseases, and extreme climatic conditions; promoting regional partnerships for the implemen-tation of agrometeorology services; and watching for, preventing, and containing transboundary livestock diseases.
• Removing barriers to trade for creating regional markets to exploit economies of scale to favour increases in productivity and competitiveness, and designing trade policies that take into account seasonal differences and varying states of food secu-rity within subregions.
• Pooling resources and competencies to undertake large infrastructure development plans, which can also have positive spillovers that make subregions more attractive for foreign direct investment.
• Disseminating knowledge and building capacity in such areas as processing tech-nologies, trade negotiations, and managing commodity trade unions.
The transboundary nature of most African water resources makes regional cooperation in water management
a necessity
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