Visa Africa Integration Index To Measure Global, Regional Economic Connectedness

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VENTURES AFRICA – Visa on Thursday launched the Visa Africa Integration Index, which will measure the degree of economic integration within key trade corridors of sub-Saharan Africa.

Necessitated by the data deficit, dearth of research and low level of information in sub-Saharan Africa, the fastest growing region in the world, the global payments company Visa – together with its partners – will share observations drawn  from ‘’aggregated’’ information from the 500 million people it touches in these key African markets.

According to Ade Ashaye, Country Manager for Visa in West Africa, “There is growing evidence that supports the argument that cross-border interactions, or openness, drives economic growth and socio-economic advancement.

“Our objective was to construct an index for a number of selected sub-Saharan African countries to measure their global and regional integration based on recent data. We want to better understand Africa to help unleash the enormous growth potential in electronic payments on the continent, now the heart of the developing world.”

He added that the Visa Africa Integration Index is particularly relevant given the release of the Africa Competitiveness Report 2013 earlier this year.

The report, jointly produced by the African Development Bank, the World Bank and the World Economic Forum, said closer regional integration would be crucial in addressing underlying weaknesses in Africa’s long-term competitiveness and ensuring that the continent delivers on its massive growth promise.

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

These 11 sub-Saharan countries are highly representative of the region, with a combined population of 437 million people, or 55 percent of the total population at the end of 2012. The study was carried out in conjunction with Professor Adrian Saville, Visiting Professor of Economics at the Gordon Institute of Business Science (GIBS) in Johannesburg.

Also, 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

West Africa cluster Visa Africa Integration Index Score
Nigeria 40.6
Ghana 52.1
Southern Africa cluster Visa Africa Integration Index Score
South Africa 63.3
Mozambique 42.4
Zambia 35.8
Zimbabwe 31.1
Angola 28.8
East Africa cluster Visa Africa Integration Index Score
Kenya 53.9
Uganda 48.7
Rwanda 47.3
Tanzania 45.3

 

Professor Saville said that Africa is still the least integrated region in the world, but there are signs of change. “While improving off 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 four half-year periods that make up 2011 and 2012.”

Nigeria

Nigeria, the second largest economy in Africa, had an integration score of 40.6 at the end of 2012 on the Visa Africa Integration Index, improving from 37.7 at the start of 2011. The gain reflects greater regional integration; though Nigeria’s global integration has remained static over the same period.

Said Ashaye: “While the country’s levels of regional and global integration still are relatively low, Nigeria is likely to be one of the key drivers of integration in Africa and one of the primary forces of African integration with the rest of the world.

“While the Nigerian economy is diversifying, aided by an increasing number of Nigerian multinationals emerging and expanding across the continent Nigerians themselves will be the true catalysts of integration, which is evident in the improving depth of the people component.”

Nigeria is expected to benefit enormously from greater integration as its growing market matures and modernises and the demand for capital and a diversity of trade partners rises.

Other African countries

South Africa has the highest score on the Visa Africa Integration Index, improving from 61.1 at the start of 2011 to 63.3 at the end of 2012.

But, like Angola, South Africa is an outlier that does not follow the conventional trend of matched regional and global integration seen elsewhere in the Visa Africa Integration Index.

In some cases the improvements are modest. Zimbabwe and Angola record gains in integration that amount to less than one percent per year. In other cases the gains were swift and substantial. Rwanda’s Index score rises rose by almost 20 percent over the two years. Ghana, Nigeria and Zambia all recorded a robust single digit improvement in economic integration.

Depth and Breadth of Integration

The analysis also considers the depth and breadth of each country’s global and regional integration. Measuring economic integration by both 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.

The chart below shows the depth and breadth component of each country’s integration value measured at the global level and regional level.  Combining these four elements produces the final Index score.

Component contributions to the Visa Africa Integration Index (2012)

 Screen Shot 2013-09-20 at 12.15.49 PM

 

Nigeria has a global integration score of 22.7 out of 50, which underlines the potential for further growth through greater global interaction. Its regional integration score is 17.9, producing a final Index score of 40.6 out of 100.

South Africa is the most integrated economy in Africa, with a global integration score of 39.1 out of 50.0 and a regional integration score of 24.2 out of 50.0, producing a final Index score of 63.3 out of 100.

Secondary Findings

A second line of integration analysis relates to how connected African countries are with one another. Once again, the evidence points to exceptionally low levels of intra-Africa flows and regional integration that, like low levels of global integration, are a key reason for Africa’s poor economic record.

Trade relationships effectively illustrate the low degree of Africa’s regional integration. On this score, World Bank data show Africa’s intra-regional trade amounted to just 13.1 percent of its total trade in 2011 – well below the global average.  By contrast, in South-East Asia and Europe intra-regional trade accounts for 50.2 percent and 72.1 percent of total trade, respectively.

Implications

“The continent’s low level of integration – with the rest of the world and, more importantly, with one another – points to an opportunity for large and sustainable gains in prosperity,” Ashaye noted.

According to him, Africa needs to trade and become more integrated in global value chains if it is to harness its natural potential and stimulate wealth and prosperity. This also means improving integration within Africa: building economies of scale and competitiveness in global markets, and weighing in alongside the likes of Asia.

The Visa Africa Integration Index provides thought leadership on Africa’s regional integration and enables 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 hope the Index provides another constructive contribution for policymakers when making strategic economic decisions.”

Ashaye concluded by noting that the findings were unambiguous in at least two regards.

“First, while coming off a modest base, the economies that we measure are rising in terms of the degree and sophistication of economic integration. Second, although the economies have some way to go in terms of catch up, they are catching up.”

 

 

 

 

 

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