Linked capital markets will sustain Africa’s growth, experts say

Integrated capital markets and a common cryptocurrency could help Africa nations sustain growth after the Covid-19 economic crisis, experts have suggested, citing the benefits of shared payment and seamless market systems.

Augustine Ujunwa, an economist at the West African Monetary Institute, said an efficient integrated capital market would be vital in raising debt to finance development needs especially at this time when traditional revenue streams have been stirred by the economic fallout from the pandemic.

“Our markets and countries are small, so we need to adopt a regional approach towards integrating markets. But first, harmonise laws, regulations, and protocols governing our fintech and digital systems,” he told delegates attending the Africa Economic Conference in Cape Verde on Friday.

Cryptocurrency debate

Proponents of integrated capital markets say they allow savings to be pooled across regions while members enjoy the benefits of cost and information sharing, diversification of risks as well as enhanced competition and innovation across financial institutions.

The approach further widens choices of financial products provided to regional and foreign investors and more linkage to the global economy by the increased attractiveness of markets.

Several regional blocs including the East African Community (EAC) and the Economic Community of West African States under the West African Capital Market Integration Council are already pushing for the integration of capital markets within their respective zones.

Experts said the adoption of a common cryptocurrency would also help sustain growth for Africa.

Anouar Hassoune, chief executive of the West Africa Rating Agency, said that a common cryptocurrency would help reduce the cost of doing business and give the continent an identity.

“We need a cryptocurrency that is acceptable to each member state. It’s better to do it at the continental level, and we have the expertise to do it. It’s a matter of governance, not an issue of technology,” he said.

He added that the proposed cryptocurrency could serve as an alternative to monetise some of the continent’s endowments, such as gold and other commodities.

Emmanuelle Riedel Drouin, head of the Economic and Financial Transition Department at Agence Française de Développement, supported the idea of a pan-African cryptocurrency but said there were some prerequisites.

“There is a lot of work to be done on the digital infrastructure, development of payment systems, payment system interoperability needs to be worked on, so there is a lot of work to be done in collaboration with the financial institutions on digitalisation of delivery and payment channels,” she said.

She added that it is essential for economies to diversify funding sources to lessen dependence on them. Several regional blocs including the EAC and central banks across the world are exploring the adoption of digital currencies.

Fiat currency

The EAC Secretariat is evaluating the potential of a central bank digital currency (CBDC) for their shared payment system to end reluctance by member countries to trade in each other’s currency.

A CBDC uses an electronic record or digital token to represent the virtual form of a fiat currency of a particular nation or region. These digital currencies are centralised and are issued and regulated by the competent monetary authority of the country.

A CBDC could provide an option for the EAC states, which target to attain a single currency for the region by 2024 in line with the bloc’s Monetary Union Protocol.

The CBDC acts as a digital representation of a country’s fiat currency and would be backed by a suitable amount of monetary reserves like gold or foreign currency reserves.

The CBDC is, however, different from the many cryptocurrencies that have been created by different individual organisations based on some assets.