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News Article : Visa African Integration Index shows improvement
Category: Economy & Global : Local Economy
Author:Grant Henry
Email:[email protected]
Posted:25 Nov 2014

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But long way off the global median

Visa in South Africa today launched the second annual Visa Africa Integration Index which measures the degree of economic integration within key trade corridors of sub-Saharan Africa, namely West Africa, East Africa and Southern Africa.

  • South Africa most globally integrated economy in Africa
  • Overall African integration trend continues
  • Africa offers major growth potential through greater regional integration
  • Visa working to drive financial integration through cross border spend

The purpose of the Index is to better understand and to help facilitate economic growth from greater cross-border interaction and economic openness.

Together with its partners, Visa touches 500 million people in Africa.

Rationale

Mandy Lamb, Country Manager for Visa South Africa, said: “Since the launch of the Visa Africa Integration Index in 2013 the African economy has extended its best period of economic growth on record by delivering growth of 4.8 percent in 2013.

“Our objective was to construct an index for a number of selected sub-Saharan African countries to measure their global and regional integration.

The Index is built from country-level macroeconomic data, and a wealth of proprietary data drawn from Visa in sub-Saharan Africa, that sum to more than 4 million observations measured across 19 elements. 

The final outputs are economic integration scores at the country and regional levels measured on a semi-annual basis for the period 2011-2013.

Lamb noted that it is widely expected that buoyant economic growth will continue for the foreseeable future and it is likely that the African economy will achieve a growth rate approaching 5.5 percent in 2014.

With a collective gross domestic product (GDP) of over $1.9 trillion – a figure that is expected to exceed $2.6 trillion by 2020.

Against this backdrop, this report provides an update to the first edition of the Visa Africa Integration Index that was published in 2013.

Study Methodology

The study offers a detailed analysis of key country clusters in sub-Saharan Africa, revealing strengths and areas of growth potential. 

The clusters are:

  • West Africa: Ghana and Nigeria
  • East Africa: Kenya, Uganda, Rwanda and Tanzania
  • Southern Africa: South Africa, Angola, Mozambique, Zimbabwe and Zambia.

The 11 constituent countries are highly representative of the region, with a combined population of 437 million people, or 55 percent of the total population.

The study was carried out in conjunction with Professor Adrian Saville, Visiting Professor of Economics at the Gordon Institute of Business Science (GIBS), and Dr Lyal White, Director of the Centre for Dynamic Markets and a Senior Lecturer at GIBS.

Four key metrics to measure integration were used: the flow of goods and services or trade (T), financial integration and the movement of capital (C), the flow of information and knowledge (I) and the movement of people (P).

This TCIP model assigns a numeric value to the level of integration, with the global median score being 100.

Findings

Southern Africa cluster

Visa Africa Integration Index Score end 2013 (end 2012)

South Africa       

66.7 (63.3)

Mozambique

42.5 (42.4)

Zambia

37.2 (36.4)

Zimbabwe

31.2 (31.1)

Angola

30.5 (28.9)

West Africa cluster

Visa Africa Integration Index Score end 2013 (end 2012)

Ghana

52.5 (52.1)

Nigeria

40.5 (40.6)

East Africa cluster

Visa Africa Integration Index Score end 2013 (end 2012)

Kenya

55 (53.9)

Uganda

48.3 (48.7)

Rwanda

47.1 (47.3)

Tanzania

45.6 (45.3)

         
 
Despite a modest base, the countries that make up the Index have undergone positive structural transformation over the past decade.

The Index offers both recent and robust evidence of this: all 11 countries show improvements in economic integration over the period measured, namely the six half-year periods that make up 2011, 2012 and 2013. 

South Africa has the highest score on the Visa Africa Integration Index, improving from 61.1 at the start of 2011 to 66.7 at the end of 2013.

In some cases the improvements are modest. Zimbabwe and Uganda recorded gains in integration that amount to 0.5 percent per year and 1.2 percent per year, respectively. In other cases the gains were swift and substantial.

Rwanda’s index score rose by just less than 20 percent over the three years. Angola, Ghana, Kenya, Nigeria, South Africa and Zambia all record robust single digit improvements in economic integration.

Depth and Breadth of Integration

The analysis also considers the depth and breadth of integration, and how integrated each country is globally and regionally.

Measuring economic integration by way of depth and breadth provides for a more granular description and better understanding of the nature of integration beyond conventional economic measures.

In terms of “depth”, a country is considered to be “deeply integrated” if the economy is particularly open and highly connected to the rest of the world.

However, integration only becomes “deep and broad” if a highly connected economy is engaged with a wide variety of counter parties across the different strands of its global relationships.      

South Africa scores highest amongst the 11 countries for global integration with a score of 42.6 out of 50. Kenya scores highest for regional integration, scoring 27.5 out of 50, narrowly overtaking Ghana.

But all of these countries – South Africa, Ghana, Kenya and the other eight – are a long way off the global median of 50.

The same observation holds for the underlying depth and breadth pillars that make up the index.

While South Africa scores highest for global depth (48.3 against the global median of 50) and global breadth (36.9); Mozambique scores highest for regional depth (27.3); and Kenya has the highest score for regional breadth (40.9).

Notably, none of these scores achieves the global median of 50. Therefore, while the economic transformation among these African countries is impressive, the index results flag the need for further structural improvements.

Conclusion

“Findings around openness and increased integration have important implications for the socio- economic advance of African economies based on at least two structural drivers.

"Firstly, African economies are substantially unconnected to the rest of the world. Secondly, African economies largely are unconnected to each other.

“Africa stands to gain from a sustained structural benefit brought about by the opening up of African economies to each other and to the world at large. Visa is also working hard with its partners to drive cross-border integration to open up the money flows across the region,” noted Lamb.

She added that Visa expects the Index to continue provide insights on Africa’s regional integration and enable us to track changes and progress over time.

“The Index offers Visa an academically rigorous foundation to understand how we can serve Africa better.  We also hope the Index provides another useful tool for policymakers when making strategic economic decisions,” Lamb concluded.

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