IEDP 2010 Action Learning Project

Regional Integration of Financial Systems

With a specific focus on South Africa’s four major banks, namely:

Standard Bank Ltd., Absa Bank Ltd., FirstRand Bank Ltd. and Nedbank Ltd.

Coach

Desray Clark

Syndicate 4 IEDP 2010

Winnie Dweba, Nades Kandan

Adri Lubbe, Thula Ngonyama

Maxwell Pirikisi

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Table of Contents

1. Introduction................................................................................................................4

2. Background on Economic and Financial Integration.............................................5

2.1 The concept of economic integration......................................................................5

2.2 SADC economic integration....................................................................................6

2.3 The concept of financial integration........................................................................8

2.4 SADC financial integration......................................................................................9

2.5 Financial Intergration key considerations..............................................................10

3. Evaluating the progress that SADC has made towards macro-economic

convergence.............................................................................................................11

3.1 SADC convergence performance against MEC targets for 2012..........................11

3.2 Required reforms to meet targets in 2012.............................................................14

3.3 Consistency of the SADC MEC targets with COMESA and EMU MEC targets . .15

4. Identifying and analysing lessons learnt from the financial integration of the European Union (EU)...................................................................................................17

4.1 Failure to apply agreed qualification criteria..........................................................18

4.2 Failute to enforce the law against defaulting member states................................19

4.3 Single Euro Payment Area (SEPA).......................................................................19

4.4 Migration of bank customers.................................................................................21

5. Lessons learnt from the COMESA journey............................................................21

5.1 Multiple memberships...........................................................................................22

5.2 Fears over distribution of integration gains...........................................................23

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6. The South African banking sector’s readiness for change..................................24

6.1 Readiness for financial integration........................................................................24

6.2 Readiness for change...........................................................................................25

7. The impact of financial integration on the big four South African banks according to PESTEL...................................................................................................26

7.1 Single Payment System........................................................................................27

7.2 Single Currency....................................................................................................28

7.3 Loss of sovereignty...............................................................................................29

7.4 Competitiveness...................................................................................................29

7.5 Infrastructure.........................................................................................................30

8. Recommendations...................................................................................................35

8.1 Review of process flow.........................................................................................31

8.2 Scenario planning to mitigate membership risks...................................................31

8.3 COMESA and EAC involvement...........................................................................32

8.4 Private sector partnership.....................................................................................32

9. Conclusion................................................................................................................35

10. Bibliography...........................................................................................................38

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1. Introduction

Africa is a continent characterised by diverse socio-economic and political challenges

and immense opportunities, whose ultimate vision is to become a truly, fully functional

united continent. One way to realise this vision is to ensure the effective regional

integration of financial systems, something Africa and African leaders have

acknowledged as a necessity and are already pursuing.

According to the Economic Commission for Africa (ECA) and the World Bank, Africa is

the most subdivided continent in the world. Almost 170 borders divide 53 African

countries. Among other things, these divisions have led to limited economic growth and

development and have allowed for the creation of small markets with limited or no

bargaining power. In response, the continent has embarked on a journey to promote

regional integration and economic development through various programmes and

trading blocs, of which the Southern African Development Community (SADC) is one

example.

Established in 1992, SADC’s main aim is to ensure deeper economic integration in the

region and to facilitate the socio-economic development of member countries. A

number of programmes have been put in place, with one of the key targets being

financial integration and a single currency in the region by 2018. Financial integration

will have a huge impact on how business is currently being conducted in SADC and

even more so, on the banking sector.

This paper is a study of the proposed integration of financial systems across SADC. It

seeks to investigate and analyse the potential impact of the proposed integration on the

South African banking sector; in particular, the readiness of the big four banks, namely

Standard Bank Ltd., Absa Bank Ltd., FirstRand Bank Ltd. and Nedbank Ltd., for the

integration. It will highlight challenges and constraints the South African banking sector

faces as a result of the impending integration.

Recommendations will be made through this paper, covering tings that the South

African banking sector, specifically the aforementioned banks, can do in order to

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minimise the impact of the envisaged integration while maximising the opportunities and

benefits thereof. The PESTEL model, which takes into consideration the Political,

Economic, Social, Technological, Environmental and Legal implications of integration,

will be used as a tool to evaluate the possible impact of the envisaged integration.

The paper will also draw on lessons learnt in the integration of the Euro Zone and the

Common Market for Eastern and Southern Africa (COMESA)

2. Background on Economic and Financial Integration

2.1 The concept of economic integration

The basics of economic integration were promulgated by Hungarian economist Bela in

the 1960s, which indicated that as economic integration increases, barriers to trade

amongst countries diminish, which in turn could lead to economic development.

Wakeman-Linn and Wagh (2008) define economic integration as a process, whether

market driven or institutionalised, which broadens and deepens financial links within a

region, which, at the very least involves eliminating barriers to cross-border investments

and differential treatment of foreign investors.

As shown in figure 1 below, economic integration, according to Zyuulu (2008), can be

categorised into four stages:

Figure 1 Data Source: Zyuulu (2008):

Stage one: this involves a Preferential Trade Agreement (PTA) whereby

countries either agree on low tariffs for certain products or agree to eliminate

tariffs amongst themselves, maintaining their own external tariffs on imports from

the rest of the world.

Stage two: this involves a Free Trade Area (FTA) or common market where

there is free mobility of labour, goods, services and capital.

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Stage three: speaks to an Economic Union (EUN), with free trade, a set of

common external tariffs (custom union), common market and some regulation on

the fiscal spending amongst the member states.

Stage four: is about Monetary Union (MUN) whereby stages one to three

features are present, including a common currency among the group of member

states, which entails the formation of the Central Monetary Authority (CMA).

2.2 SADC economic integration

The commitment to economic integration as an economic and socio-economic growth

strategy in Africa can be seen in the amount of regional integration efforts currently

taking place on the continent. Other than SADC and the Common Monetary Area

(CMA) there is also the East African Community (EAC); COMESA; the West African

Monetary Zone (WAMZ); the Economic Community of West African States (ECOWAS)

and the Middle East and North Africa (MENA) regional blocs. Refer to figure 2 below.

Figure 2 - Data Source: SADC (2009)

The formation of SADC in 1992 saw member states recommitting themselves to

concerted efforts to achieve deeper regional integration as a means of attaining socio-

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African Regional

Integration Initiatives

COMESA(Common

Market for East and Southern

Africa )

SADC(Southern

African Development Community)

CMA(Common

Monetary Area)

WAMZ(West African

Monetary Zone)

EAC(East African Community)

MENA(Middle East and

North Africa)

ECOWAS(Economic

Community of the West African

States)

COMESA(Common

Market for East and Southern

Africa

African Regional Integration Initiatives

economic development. SADC member states include Angola, Botswana, Democratic

Republic of Congo (DRC), Lesotho, Madagascar (suspended), Malawi, Namibia,

Mozambique, Mauritius, Seychelles, South Africa, Swaziland, Tanzania, Zambia and

Zimbabwe.

Refer to figure 3 below, depicting the current SADC member states and the states that

are members of multiple regional economic integration initiatives, which could pose as a

challenge for the SADC financial integration.

Figure 3 – Data Source: SADC (2010)

According to the SADC Regional Indicative Strategic Development Plan (RISDP), there

are a number of initiatives that have been put in place aimed at ultimately achieving

Monetary Union as referenced earlier in this paper. A SADC free Trade Area was

launched in 2008, with the intention of progressing to a Customs Union in 2010 and a

Common Market by 2015. It is envisaged that by 2016 monetary union will be formed

with the intent to introduce a regional single currency by 2018. (See figure 4 below).

Figure 4 - Data Source: SADC (1999)

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SADC

CMA

COMESA

EAC

SADC member states have set themselves primary targets for four macro-economic

indicators to measure macro-economic convergence. Macro-economic convergence (or

stable levels at least) is needed before Monetary Union can be formed.

The chosen four primary indicators and their targets are:

Year 2008 2012 2018

Inflation Rate <10% <5% <3%

Fiscal Deficit/ GDP <5% <3% <3%

Public Debt/ GDP <60% <60% <60%

Current Account/ GDP* <9% <9% <3%

Table1 Data Source: SADC (1999) *SADC intentions are to reduce the primary indicators to

three, by demoting the status of the current account to a secondary indicator. However, this

awaits the imminent ratification of the Protocol to legalise the revision.

Economic integration for SADC is geared towards creating larger markets with

favourable investment and business environments to allow for sustainable and equitable

economic growth in the region. It further aims at fostering socio-economic development

and improving the livelihoods of the citizens of the region. FIP (2006). Below are the

main economic integration benefits as depicted by SADC:

1. Creation of larger markets, which allow for economies of scale.

2. Creation of wider competition and increased foreign investment.

3. Opening up of economies to the rest of the world.

4. Strengthening of regional credibility through lock-in policy mechanisms.

5. Strengthening of the region’s negotiating and bargaining power with the international

communities.

2.3 The concept of financial integration

Financial integration is a subset of broader economic integration. It could be defined as

the removal of any barriers to an integrated market for financial services. Financial

systems are seen to be integrated once the regional financial markets agents face

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identical rules, having equal access to financial instruments or services in the market

and equally treated when active in the market. ECB (2004)

The integration of financial systems is crucial for effective Monetary Union, since

monetary policy is implemented through the financial systems. Therefore, financial

systems are to be as efficient as possible to guarantee a smooth and effective

transmission of monetary policy. ECB (2004)

Financial integration further involves the structuring of the financial intermediaries and

institutions within the region and can thus be seen as the convergence of the financial

structures. Furthermore, financial integration requires that the same access is given by

financial institutions, to clearing platforms, among other things, to both the demand and

supply sectors. ECB (2004).

2.4 SADC financial integration

In August 2006, SADC states entered into a finance and investment protocol (FIP),

which provides the legal framework towards the operationalisation of financial

integration in the region. FIP was deployed as tool to ensure harmonisation of

investments and financial policies in SADC. FIP (2006)

FIP aims at formulating and implementing stability-oriented macro-economic policies

towards the attainment of macro-economic convergence and development, as well as

the strengthening and deepening of financial and capital markets. It also seeks to

harmonise the policies, legal and regulatory frameworks relating to the financial and

investment environment. It further seeks to promote SADC as an attractive investment

destination. FIP (2006)

With reference to figure 5 below, SADC has defined a programme structure towards an

effective implementation of financial integration across the region. Different working

committees have been set up by SADC to drive and to oversee regional financial

integration. There is involvement of both the public and private sector. The public sector

is engaged through the SADC states, SADC committee ministers and the Committee of

Central Bank Governors, while the private sector is represented by the SADC Banking

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Association of which South Africa is a secretariat. The private sector is also involved in

a number of committees within the Committee of Central Bank Governors.

Figure 5: SADC Financial Integration Programme structure

Source: SARB

2.5 Financial Integration Key Considerations

It is envisaged that regional integration of financial systems will yield various benefits for

South African Banks, despite these benefits, consideration needs to be given to the

implications on liquidity and capital adequacy, the implications on treasury and other

related matters, principles and operational company-specific policy considerations,

retaining a competitive environment as well as legal and regulatory matters. The human

element also needs consideration and includes issues like the management of shared

resources and the integration of cultures.

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3. Evaluating the progress that SADC has made towards Macro-economic Convergence

The SADC Macro-economic Convergence (MEC) programme involves commitment by

member states to meet a set of macro-economic convergence criteria at three points in

time over the period 2008 to 2018. As stated earlier in the SADC economic integration

section of this paper, four primary macro-economic indicators were chosen to measure

convergence which will path the way for a Monetary Union in 2016.

It must be noted that these convergence targets have not been set as entry criteria for

inclusion into SADC, and that political pressure is the only mechanism driving

compliance.

In order to establish the level of readiness of SADC for financial integration (building

block for Monetary Union), the following are evaluated in the upcoming section:

1. SADC’s performance against MEC targets for 2012

2. Required reforms to meet targets in 2012

3. The consistency of the MEC programme with other regional macro-economic

convergence programmes, being the European Monetary Union (EMU) and the

Common Market of Eastern and Southern African (COMESA)

3.1 SADC convergence performance against MEC targets for 2012

The year 2008 was a difficult year for SADC economies with the global economy

experiencing a period of recession causing international trade volumes to fall sharply. It

is widely acknowledged to be the most serious economic crisis since the 1930s.

In 2009, SADC’s economic performance was affected by the second round effects of

the global economic crisis. Economic growth slowed down but remained positive in

most member states. The most affected sectors were mining, manufacturing and

tourism. (SADC, 2010). Consequently, performance towards the macro-economic

convergence targets for 2012 was adversely affected.

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Inflation

Global inflation eased throughout 2009 as a result of stable food prices combined with

improvements in food supply in the region. This resulted in downward inflation trends,

with ten states recording single digit inflation. However, the region still recorded a

double digit inflation rate averaging 10.2% in 2009 compared to 13.8% (excluding

Zimbabwe) in 2008, which was slightly above the SADC inflation targets.

Figure 6: Average annual inflation, 2009 SADC

Data source: SADC (2009) Note: Excludes Madagascar and Seychelles

Fiscal Deficit and Public Debt

With global demand and commodity prices declining, resulting in deteriorating external

balances, government revenue declined in most member states. On the other hand,

expenditures were maintained and in some cases increased to finance critical

programmes. As such fiscal deficit for the region deteriorated to 5.5% in 2009 compared

to a surplus of 2% in 2008.

These deficits were mostly financed by borrowing both from domestic and external

markets. Consequently, public debt increased, although still within ranges of target. The

region recorded a public debt of 48.6% of GDP compared to 38.4% in 2008.

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104,543

Figure 7: Fiscal Balance / GDP, 2009 SADC

Data source: SADC (2009) Note: Excludes Madagascar and Seychelles

Figure 8: Debt / GDP, 2009 SADC

Data source: SADC (2009), Note: Excludes Madagascar and Seychelles

Current Account

Current account deficits rose sharply in 2009, largely reflecting higher import costs. Very

limited reporting was done in 2009, due to the impending removal of current account

balances from primary MEC targets.

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29.9

Figure 9: Current Account / GDP, 2009 SADC

Data source: 2009 - SADC (2009), Data source: 2008 – IMF (2009)

3.2 Required reforms to meet targets in 2012.

The period between 2010 and the next assessment date for meeting the SADC MEC

targets in 2012 will be dominated by the fallout from the global financial and economic

crisis, and the anticipated global recovery.

The impact of the global financial crisis will make it difficult for SADC member states to

meet some of the 2012 MEC targets. The immediate outlook is for rising fiscal and

current account deficits, increased public debt with slower growth and declining inflation.

However, it is likely that the adverse trend will reverse prior to 2012, so at least MEC

indicators should be moving in the right direction.

SADC countries will require deep structural changes and policy reforms that are already

under way in many countries.

The necessary reforms include the following (SADC 2009):

1. Improving the efficiency of product, labour and financial markets through

enhanced competition and improving the effectiveness of the price mechanism

2. Higher levels of productivity through investment in education, skills and training,

and addressing legal constraints

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3. Reducing cost levels and improving competitiveness

4. Pursuing trade reforms, especially using tariff reform to bring down cost levels, and

implementing trade facilitation measures to reduce the costs of international trade

5. Fiscal reforms to simplify tax regimes and improve revenue mobilisation

6. Investment in economic infrastructure

7. Taking advantage of the economies of scale and potential for cost-reduction

offered by regional economic integration, and being prepared to forego national

sovereignty in order to achieve greater regional integration

3.3 Consistency of the SADC MEC targets with COMESA and EMU MEC targets

As mentioned previously, a number of Macro-economic Convergence Programmes

exist worldwide. In addition to the SADC MEC programme, there are similar

programmes in COMESA and outside of Africa; the European Monetary Union (EMU)

has MEC criteria for both existing members and as entry criteria for aspiring new

members.

Table 2 below draws a comparison between SADC, EMU and COMESA.

There is considerable variation across MEC programmes in terms of both the specific

variables included and the numerical values of the targets. The most commonly

included variables are inflation, fiscal deficit and public debt.

In the case of COMESA and EMU the inflation objective is 5% or less; the 2008 SADC

inflation objective of less than 10% is therefore relatively high with the 2012 target being

in line.

Fiscal deficits vary in terms of the specific definition of the target variable. The EMU

target is <3%, so the 2008 SADC MEC target is towards the high end (matched only by

the COMESA Stage 1 target of 5%). The 2012 and 2018 SADC targets for inflation and

fiscal deficit are more in line with those of other MEC programmes.

The SADC public debt target is in line with those used in the EMU region.

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Table 2: Macro-economic Targets for convergence primary target comparison

Indicator SADC 2008

SADC 2012

EMU COMESA Stage 1

COMESA Stage 2

Inflation rate <10% <5% ≤3 lowest inflation

+ 1.5%

≤5% ≤3%

Fiscal Deficit <5% <3% <3% ≤5% ≤4%

Public Debt <60% <60% <60% “Sustainable level”

(secondary)

Status of the Current Account

<9% <9% None “Sustainable level” (secondary)

Source: SADC (2009)

Beyond these three criteria, there is no consistent pattern. Only SADC of the evaluated

three have targets for the current account of the balance of payments, which might be

behind the proposal to demote it to a secondary target.

Where secondary targets are concerned, SADC and COMESA have targets for foreign

exchange reserves, but for COMESA this is a primary target. SADC and COMESA both

have investment and central bank financing of fiscal deficit targets, while only SADC

has a secondary target of domestic savings. Several countries have secondary fiscal

targets, such as the proportion of revenues spent on wages.

Perhaps the most striking contrast between SADC and other MEC programmes relates

to exchange rates and interest rates. The EMU sets criteria for prospective members,

relating to the convergence of nominal exchange rates and interest rates and being

maintained within a prescribed range for a period of time. By contrast, COMESA has

targets for real exchange rates and interest rates, although these are stability targets

rather than convergence targets.

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Nevertheless, the fact that SADC is the only regional integration bloc with a monetary

union objective but without exchange rate or interest rate targets suggests that this gap

should be reconsidered. (SADC, 2009)

4. Identifying and analysing lessons learnt from the financial integration of the European Union (EU)

The European Union (formerly known as European Economic Community), was formed

in the early 1990s. The requirements for participation, or more formally the accession

criteria, were established at the June 1993 European Council in Copenhagen, Denmark.

For reference purposes, the qualification criterion is:

1. Political Stability - achieved through democracy with a respect for the rule of law,

human rights and the protection of minorities

2. Economic Stability achieved through a market economy which is mature enough to

cope with competition from other EU members

3. Acceptance of the law - as defined by the EU to date

Figure 10: the Euro Area

Source: Netherlands Central bank

The learning process has been a long one for the EU, and the current economic crisis,

with many European countries at the centre of it, puts new challenges and questions old

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Euro area

thinking with regards to regional integration. This is an invaluable leaning opportunity for

SADC, with various learnings especially around the qualification criteria, defaulting,

payment systems and customer migration.

4.1 Failure to apply agreed qualification criteria

Aside from the Copenhagen criteria, a set of macro-economic convergence criteria was

agreed upon, being:

1. Price stability, to show inflation is controlled

2. Soundness and sustainability of public finances, through limits on government

borrowing and national debt to avoid excessive deficit

3. Exchange-rate stability, through participation in the Exchange Rate Mechanism

(ERM II) for at least two years without strong deviations from the ERM II central rate

4. Long-term interest rates, to assess the durability of the convergence achieved by

fulfilling the other criteria

A decision was reached on 25 March 1998 by the European Commission and the

European Monetary Institute (EMI), now the European Central Bank (ECB) to allow

counties that didn’t meet the convergence criteria to join the EU. Most notable, an

exception has been made for Greece. The aftermath of that decision is still unfolding.

The EMI had come to the following conclusions:

The 15 EU member states, with the exception of Greece, met the inflation and

interest rate criteria; the reference value for inflation was 2.7% in 1997, and the

maximum reference value for the interest rate criterion was 7.8% in 1997.

Twelve currencies had participated, without any severe tension, in the European

Exchange Rate Mechanism over the previous two years (the pound sterling and the

Swedish krona did not take part in the mechanism and the Greek drachma joined

the ERM on 14 March 1998)

For the 15 EU Member states, with the exception of Greece, the government deficit

was below or equal to the reference value of 3% of GDP. Progress had been made

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towards bringing the government debt ratio close to the reference value of 60%,

although further efforts were required from countries with a debt ratio of over 100%

of GDP.

Slovakia subsequently joined in 2002, to bring the number to 16 countries.

The lesson for SADC is that a qualification criterion is critical as the consequences of

not having one will create a Greek scenario for the region.

4.2 Failure to enforce the law against defaulting member states

According to professor of European Law, Dr. Matthias Ruffert each and every European

Union treaty that established the European Currency Union and the European currency

called the Euro prohibits any form of bailout of for struggling EU, its government or its

bonds, be it via direct subsidies, by co-guaranteeing its debt or in any manner

conceivable.

All the members of the Euro zone have sworn solemn oaths called the Maastricht

Stability Pact. It is this pledge that not only Greece has broken, but, by the size of Gross

Domestic Product, the vast majority of the Euro member states (currently 16) could not

enforce the law on defaulting nations because of the political will the European Central

Bank (ECB). The member states had to inform the ECB of how they were going to

overcome the defaults. The member states central banks were trusted by the ECB to

oversee the process and report back to the European Central Bank.

The learning for SADC is that a region’s Central bank has the right to enforce law on

any defaulting member state.

4.3 Single Euro Payment Area (SEPA)

SEPA aims to establish a single market for retail euro payments by overcoming the

technical, legal and market barriers stemming from the period prior to the introduction of

the single currency. This will allow customers to make euro payments throughout

Europe as easily, securely and efficiently as they do today within their own countries.

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Once SEPA has been completed, there will no longer be any differentiation between

national and cross-border euro payments; they will all be treated as domestic.

SEPA consists of members from 32 countries, composed of banks, banking

associations and payment institutions. Until now, migration deadlines have been

relatively loose, with no decision on a final date. Cooper, Barclays' senior product

manager on SEPA, noted that many corporates are having trouble justifying the

business case for SEPA in the absence of a firm migration deadline away from legacy

infrastructure.

Banks have to upgrade their systems to satisfy the SEPA requirements which include

the use of standardised information in payment messaging. This will comprise the

International Bank Account Number (IBAN) and the Bank Identifier Code (BIC), both of

which will enable payment routing across the SEPA area in a common format. IBAN

was launched in January 2008 and it is envisaged that it should be broadly available on

debit cards by 2013 by the bulk of EU countries.

To have an integrated payment system, major decisions still have to be made on the

following:

1. Further European standardisation

2. An end date for national payment instruments

3. Interchange fees and payment fees

4. Well organised stakeholder involvement and consultation

5. Innovation at a European level (e-SEPA, mobile payments)

The advent of SEPA will lead to cross-border consolidation of banks, which will help

deal with the costs of compliance as well as providing greater economies of scale when

it comes to payments. Banks can potentially offer services across a number of

countries, not just those where they have physical offices located.

The lesson for SADC, and in particular Banks, the implementation of a single payment

system will be costly which can lead to banks mergers.

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4.4 Migration of bank customers

Apart from the loss of customers and revenue, the economic events of 2009 have

shown a costly consequence of a single market – the burden to bail-out citizen money

invested in another country. The failure of Icelandic banks and the ripple effect on

Britain and the Netherlands is a classic example. In fact, given the volcanic eruptions in

Iceland, a popular phrase coined by the Dutch is: “We said send cash, not ash!”

Iceland applied to join the European Union on 16 July 2009 and the application was

accepted on 27 July. The EU announced in February 2010 that it supports the opening

of accession talks with Iceland. Iceland's government has a target date of 2012 for

joining the block. As part of the European Economic Area, Iceland is already a member

of the EU's single market. It is also a member of the Schengen Area which removes

border controls between member states.

Icesave was the name of the online banks set up in Britain by Landsbanki, one of the

big 3 banks of Iceland. When the Icelandic banks collapsed in October 2008, the

government passed emergency legislation to rescue their deposits. But those outside

Iceland were not included. The British and Dutch governments paid €3.8bn to bail-out

the depositors in their countries. The two EU countries subsequently went into

reimbursement talks with Iceland, leading to the passing of the “Icesave law”.

Not surprisingly, on 6 March 2010 Iceland’s voters resoundingly rejected the

compensation plan to Britain and the Netherlands, since the “Icesave” debts come to

more than $15,000 for each of the 320,000 people on the island.

5. Lessons learnt from the COMESA journey

A number of lessons can be drawn from the COMESA experience, including the

challenges of multiple memberships by countries, the inequitable distribution of benefits

and labour force migration.

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COMESA is a regional integration grouping of 21 African member states which includes

(Angola, Burundi, Comores, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea,

Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan,

Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe), established in 1994, replacing

the Preferential Trade Area (PTA) that existed since 1981, in a move to eliminate all

internal trade tariffs and barriers.

The COMESA Treaty stipulates the aims and objectives of COMESA as:

Attaining sustainable growth and development of the member states by

promoting a more balanced and harmonious development of its production and

marketing structures

Promoting joint development in all fields of economic activity

Co-operation in the creation of an enabling environment for foreign, cross-border

and domestic investment

Co-operation in the promotion of peace, security and stability among member

states

Co-operation in strengthening the relationship between the Common Market and

the rest of the world

Contributing towards the establishment, progress and the realisation of the

objectives of the African Economic Community

5.1 Multiple memberships

SADC, COMESA and EAC consist of members states that belong to other regional

organizations, as can be seen in the graph below.

Figure 11: SADC, COMESA, EAC members

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Source: Lungelo & Mbilinyi (2009)

From a legal as well as technical point of view, a country cannot apply two different

common external tariffs and therefore cannot be a member of more than one customs

union. Hence, the current pattern of overlapping membership becomes impossible to

maintain since COMESA has already become a customs union and SADC will follow

soon.

The lesson for SADC is that regional integration is hampered by member states that

have dual membership have to choose the region they belong to with an effort to ensure

that the milestones are achieved.

5.2 Fears over the distribution of integration gains

The REC may not succeed because of the fear among partner states of the discretional

effects following an integration process. A critical issue in the success of integration

schemes is the equitable distribution of the benefits of integration between member

states. Fouroutan (1993) argues that a common reason for the failure of regional

integration in Africa is the concern among the poorest African countries that the removal

of trade barriers may cause the few industries which they possess to migrate to

industrially more advance countries.

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COMESA

Egypt, Libya, Djibouti, Eritrea, Ethiopia, Sudan, Comoros

Zimbabwe, Zambia, Malawi, Mauritius, Swaziland, DRC, Seychelles, Madagascar

SADC

South Africa, Namibia, Mozambique, Lesotho, Angola, Botswana

EAC

Kenya,Uganda,Rwanda, Burundi

Tanzania

Intra-trade between the members of the proposed REC is still very low. For instance

EAC exports to the SADC region in 2007 accounted to only 8.3% of the total exports

and 20.9% to COMESA. Intra-SADC trade accounted to only 20% of total SADC trade

in 2007. (Lunogelo & Mbilinyi, 2009). This cast doubt whether the move to unite the

continent will bring any substantial trade creation. The weak trade link between the

Eastern and the Southern blocs may threaten the move to form one REC as proposed.

The weak link can be explained by the structure of the economies that most of them

produce and export similar raw primary products, lack of value addition, low level of

industrialisation (except for South Africa) and poor infrastructure systems.

A lesson for SADC is that an effective legal framework needs to be in place to ensure

that the poorer member states are protected from the influx of big economies in their

states, which can hamper the progression of local firms.

6. South African banking sector’s readiness for the change

6.1 Readiness for financial integration

It is important to state that the road to integration of any sort will have to overcome at

least five important hurdles, which almost all the major banks in South Africa accept:

1. The fear or possible loss of sovereignty, especially by smaller financial institutions

2. Potential loss of revenues, including fees and other traditional income streams.

3. Lack of financial resources to create and sustain integrated structures and other

operational mechanisms

4. Potential difficulties in managing the wide variation in the socio-economic

development of various communities and market segments

5. Fear of the unknown regarding economic benefits

Major South African financial institutions acknowledge that integration should indeed be

a deliberate process, focusing on clear principles and operational guidelines.

6.2 Readiness for change

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South African banks will face resource constraints, and an increase in resources

envelops will be required to allow for effective support of the regional integration agenda

to succeed.

Deeper regional trade integration will require the strengthening of financial integration.

This in turn will require a comprehensive program aimed at strengthening and

streamlining financial sector policies and financial infrastructure (regulatory framework,

payments systems). This will also help in the development of strong financial institutions

(banks, non-bank financial institutions bond and capital markets) and enhance the

financial system’s ability to mobilize and allocate resources, especially medium and

long-term resources for development financing. This is critical for supporting private

sector development, regional and international trade and, ultimately, growth and poverty

reduction.

Figure 12: SADC Modernisation 2010

Source: SADC (2010)

According to SADC (2010), each SADC member is in the process to prepare for an

efficient and effective payment system which will be internationally acceptable,

interlinked within the region and will support free trade. Figure 12 above indicates the

readiness of SADC members for such a payment system.

25 | P a g e

IMPLEMENTATION

LAUNCH

SENSITISATION

INFO & STOCKTA

KING

VISION & STRATEG

Y

CONCEPTUAL

DESIGN

BUS. PROC SPECS

TECHNICAL

SPECS

DEVELOP/

PROCURE

IMPLEMENTATION

ANGOLABOTSWANA

DRCLESOTH

OMADAGASCARMALA

WIMAURITIUSMOZAMB

IQUENAMIBIA

SOUTH AFRICASWAZIL

ANDTANZANIAZAMBIA

ZIMBABWE

SEYCHELLES

7. The impact of financial integration on the big four South African banks according to PESTEL

South Africa’s integration into the global economy after the first democratic elections of

1994 had important implications for the South African banking sector. The official policy

has since been to open up the South African banking sector to foreign participation. As

a result of this policy, 15 foreign banks have registered branches in South Africa and 60

foreign banks do business in the country through representative offices. According to

BIS Review 95/2000, the South African banking sector remains sound and well-

managed. The South African Reserve Bank is responsible for bank regulation and

supervision which is based entirely on the recommendations of the Basel Committee.

New technologies, improved infrastructure and political stability are some of the

contributing factors that will make the world a smaller place. Evidence has showed that

elimination of obstacles to free trade has led to greater market efficiency and better risk-

and-return combinations for investors. This is largely due to greater financial market

integration. However, there are though disadvantages associated with integration of

financial markets to the extent that it can reduce the ability of domestically focused

policies to deal with the problems arising in the respective domestic financial markets.

Integration comes with various challenges and complexities, bringing along with it

serious threats and opportunities. The next section will focus on analysing these threats

and opportunities according to the PESTEL model, which takes into consideration the

Political, Economic, Social, Technological, Environmental and Legal implications of

such integration.

7.1 Single Payment System

If one has to travel from one African country to another, one can easily trade in cash.

The challenge is paying cashless, for example with a card, outside your home country.

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This is mainly due to economic; technical and legal market barriers, proving that the

individual elements of the PESTEL model can often not be isolated.

The challenge of a cashless environment was addressed by the European Banking

Industry through a single payment system namely, the Single Euro Payment Area

(SEPA), whose main objective is to overcome these barriers. SEPA was discussed in

section 4.3.

According to Dave Mitchell (Head: National Payment Systems), the plan for SADC is to

set up systems that will result in a single payment system for the zone. It is reported that

12 countries have already implemented gross real-time settlement systems, which

means that they have the means to conduct immediate electronic settlements. This

project is largely aimed at addressing the technological aspect of the SADC regional

integration.

The other three countries which had not yet achieved this level of service are the

Seychelles, Madagascar and the DRC. These countries still maintain a largely unbaked

population and conducted mostly cash transactions. This is a classic example where

the political and social development of countries acts as a technology inhibiter.

The aim of the payment project is to mirror the European Union’s economic integration

model, which would ultimately include one central bank, one multinational payment and

settlement system and one currency. No firm dates have been committed to although

SADC aims to have the systems integration done by 2015 and the single currency by

2018. The lesson from the EMU is that they first embarked on a single currency, and

now more than 10 years into the future is still in process to establish a single payment

system. The order and timelines of the SADC model might therefore be unrealistic.

Figure 13 below sketches out the proposed rollout plan of the SADC single payment

system.

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Figure 13: Proposed Rollout Plan

S

ource: SADC (2010)

7.2 Single currency

Financial regional integration in SADC without having a single currency can translate

into economic and legal risks. This is mainly due to the risks of various floating

exchange rates and currencies that are not convertible. This in turn will call for most of

the African regional blocks to have separate clearing houses. This is what currently

exists between The Economic Community of West African States (ECOWAS) which is a

regional group of sixteen countries, and COMESA.

Integration can bring along instability in financial and money markets, especially in

cases where countries are trading with a single currency as with the Euro-zone.

Employment levels could increase or decrease depending on the strength of institutions.

Bigger banks could easily destroy or even buy out smaller competitors in under

developed countries. Depending on the model, cultural intrusion becomes a huge

challenge on its own.

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Develop centralised collateral management system

12 Months ending June 2015 – Develop the interfaces and have them tested

18 Months ending December 2016 – Test the system with the selected countriesIntegrated system tests for participants going live

18 Months ending June 2018 – Activate the system in the selected countries

Roll out to selected countriesBeyond June 2018 – Implement the system in the other countries as and when they are

readyPhased-in roll out to remaining countries

7.3 Loss of sovereignty

One of the biggest challenges amongst the many already listed is of political nature:

loss of sovereignty. The local industry faces the risks of political instability and

inconsistent governments. This could ultimately lead to drastic change in policy and also

poor uptake of the system. Most countries in the SADC region depends heavily on

donor funds, and in some instances they show little or no financial growth and also lack

of innovation.

7.4 Competitiveness

Legal challenges that face integration projects are over or under regulation of markets.

Quite often over regulated markets leave no room for competition. This is sometimes

necessary in countries where the state has to play a bigger oversight role to ensure

some form of competitiveness and control of the markets.

However one has to look at the benefits and opportunities that come with integration.

These include widening the consumer choice across borders and new entrants into the

market. The consumer has a competitive advantage with more available choices. The

introduction of new technologies will benefit the less privileged countries. Investment

choices across our borders will be much easier and accessible. The creation of

knowledge economies will be greatly enhanced through information and communication

technology.

Closed market structures are very common in the case of many African countries. The

state usually plays an important role in major industries and will not let go of certain

institutions as this is usually a ‘cash cow’ for many African governments. The challenge

the South African banks will face is gaining market share in countries that will not easily

privatise or liberalise these financial institutions.

At present there seems to be little or no competition in the local domestic market by the

big four market players. New policies will have to be developed to ensure proper and

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well managed competition. Plans must be in place to provide for proper regulation,

oversight and implementation. Transfer of skills and training will have a huge impact on

regions that are already ahead in information, communication and technology.

South African banks could possibly be the only ones in the region with access to

sophisticated technology and substantial assets. This already poses a threat to smaller

financial institutions in the SADC region. The threat to the region could be far greater

than anticipated. This could lead to larger South African banks replacing existing extra-

regional banks.

It is cited in a study by African Development Bank (1999) that ‘control of the region’s

banking market by South African institutions is unlikely to be beneficial to other

countries. This is largely due to the fact that effective banking regulation must be in

place to ensure that banks act competitively. However, for integration to work

successfully all regions must be included as this will also allow the financial industry to

become more innovative and competitive to stay in business.

7.5 Infrastructure

According to a study conducted by the African Development Bank (1999), there are

significant differences within the region in the structure of financial sectors. In some

regions like South Africa and Zimbabwe, the financial sector is privately owned and

controlled. These regions also have highly sophisticated systems in place. Malawi and

Zambia has substantial state ownership and control and in some regions like Angola

and Mozambique until recently, it was entirely state-owned.

Currently the banking systems in South Africa are rated very highly in the international

banking industry. Most of the developing countries in SADC lack proper infrastructure

and modern technologies. This will have an impact on timelines and costs to upgrade so

as to be able to interconnect with the rest of the region. The question arises on how to

finance this model internally and across the various regions.

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8. Recommendations

8.1 Review of process flow

The European Union embarked on attaining a single currency which was then followed

with the single payment system, whilst SADC is planning to do a single payment system

prior to a single currency. Integrating economic and monetary markets without having

one currency has proven to be possible. However, having one currency is believed to

further strengthen the internal market by allowing for a smoother and free movement of

goods, services, capital and people. This was the main reason the Euro was introduced

in 1999 as the accounting currency, and in 2002 Euro banknotes and coins were

introduced into the Euro Zone. The approach taken by SADC to integrate the financial

systems first is therefore workable, but with lots of technology and infrastructure

changes.

The implication for the big four SA banks is that they will be pulled into work team to

develop the various requirements to enable the payments environment as soon as

2011. Given the technology and infrastructure challenges for a single payment system

without a single currency, the big four should start building up specialised resources to

face these challenges, while still providing in-house support.

8.2 Scenario planning to mitigate membership risks

The European case study is a classic example of how politics reigned supreme over

agreed economic principles. Countries failing to meet the MEC criteria were allowed to

join the EU, and when the economic crisis of 2008 hit, countries were bailed out, which

is against the principles of the European Union treaty.  The consequences of these

decisions are still unfolding today.

It is recommended that SADC does a detailed scenario plan with possible economic

and political scenarios, and draw up an action plan to mitigate this risk. The big four SA

banks would then need to translate these risks into individual balance sheet risks. For

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example, rapid expansion strategies into Botswana might be at risk, should Botswana

decide not to become a member of SADC.

8.3 COMESA and EAC involvement

Currently, SADC, COMESA and EAC are competitive regional programmes, despite

multiple member overlaps. Many countries are using “wait and see” tactics before

making a final call on their preferred partners in trade or regional bloc. For example,

Tanzania is a member of the EAC as well as COMESA and they do not seem to be in a

hurry to cement their allegiance. From a legal as well as technical point of view, based

on available literature, a country cannot apply two different common external tariffs and

therefore cannot be a member of more than one customs union. It is therefore clear that

SADC cannot embark on the journey towards a monetary union alone.

It is recommended that SADC seeks consultation and involvement from COMESA and

EAC. Should the three entities continue to exist in their current format, it will have

severe implications on South African Banks. South African banks are embarking on

aggressive expansion strategies into Africa, and three different RECs will add

substantial complexities in payments systems, regulatory requirements and customer

relationship on the banks.

8.4 Private sector partnership

The current SADC roll-our plan is centrally organised by the central banks of each

member. The corporate, business and retail banking sectors have been involved to a

very limited extend, although the changes required from them are substantial. It is

recommended that the South African Reserve Bank embark on a greater inclusion

strategy, for private sector expertise to be utilised more effectively.

Lessons learnt from the European integration project were a combination of different

and potentially contradicting factors. According to (Kühnhardt, 2008) the following two

factors should be taken cognises of by the big four banks:

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1. The recognition that a joint will requires compromises which are not always based

on a speedy “return on investment” but need to be understood as a long term

commitment of all partners.

2. The understanding that different interests can be coupled through mutual trust in the

overall usefulness of a project in spite of existing differences in motivation and

objectives.

9. Conclusion

This paper explored the definitions and meaning behind both economic and financial

integration, including some background on SADC as an economic region and what the

union seeks to attain. Analysis on the progress to date in all the SADC initiatives and

set targets was undertaken and documented as part of this paper.  Lessons learnt from

the Euro Zone economic integration process and other economic integration initiatives

in the African continent were investigated. On the basis of the Euro zone case study in

conjunction with other current economic integration initiatives studies done as part of

this research paper, economic integration could be a complex and a lengthy process,

which requires political will and commitment from all the parties involved.  Economic

integration requires the parties involved to have a common drive and interest; benefits

should be visible and attainable to all the parties involved.  The economic integration

process is also characterised  by lots of fears from parties involved, in many instances

fear of loss of economic value by the countries with bigger economies whilst the smaller

countries have the fear of ‘big brother’; taking over. Most countries also demonstrate the

fear of losing their sovereignty, particularly where a monetary union is envisaged.

Financial integration as a subset of this process is by and large impacted by the

economic integration broader processes. It is largely dependent on the agreements

reached by the head of states and the head of central banks.  This makes financial

systems integration an even more complex process mainly because of the

dependences and the minimum control the parties required.

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This also holds true in the case of SADC, the discussions and the processes towards

economic integration have been ongoing from as early as the mid-1990’s yet the

implementation strategy and plans are yet to be finalised.  As a result as recent as July

2010, the SADC central bank only unveiled the road map towards the financial system

integration with an expectation that the commercial banks should be ready for the

monetary union in 2016.  This does not give the stakeholders, mainly commercial banks

much time to work.

Therefore the commercial banks have limited time to undertake necessary steps

towards meeting the 2016 monetary union vision.  The key for the big four banks in

South Africa is to work very closely with the Reserve Bank through the defined

structures to ensure that their input is taken into account as the strategy and plan

towards financial integration is being defined.  Their commitment and partnership with

the South African Reserve Bank will make the process much bearable and will give

them a platform to influence decisions and plans.

Given the technological, infrastructural and operational impact the financial integration

brings; the banking sector needs to start prioritising initiatives towards financial

integration such that they are included in as early as their 2011 budgets.   Programmes

to drive the process should be established to ensure an integrated means of driving the

process.  The scoping process to establish the required initiatives should be one of the

big four bank’s priority programme’s in 2011, clarity on the costs and the effort involved

at an early stage will allow them for better planning and even better collaboration

wherever required and possible. 

Based on the discussions held with different stakeholders in the banking sector, it was

clear that the current structures set out to achieve the financial integration are not yet

utilised to their capacity.  The payments committee came up as the only committee that

is currently active in pursuing its goal towards financial integration whilst others are not

yet that active in the process.  The SADC central bank needs to ensure that these

committees are well established and driven to ensure progress and buy in from all the

parties involved. 

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It is safe to conclude that most, if not all, SADC stakeholders are not oblivious of the

challenges and opportunities presented by the expected integration of financial systems

across the region. Certain milestones have already been achieved en-route to full

integration. In the words of Mshiyeni Belle (The Times, Times LIVE, 21 July 2010), the

head of the secretariat of the SADC's committee of central bank governors, though the

task may be daunting, it is not impossible, as shown by the amount of preparatory work

currently underway. However, coordinating the work being done and communicating al

actions appropriately remains a challenge.

As stated earlier, SADC planned to have a single currency by 2018 and a single central

bank by 2016. Already, 12 countries have implemented real time settlement and 12

countries have implemented at least one electronic clearing system. About eleven of the

15 countries have real time gross settlement systems. Challenges remain especially

around the harmonisation of banking supervision regulation, general banking laws,

ensuring uniform IT systems and a framework that engenders good corporate

governance.

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Akukwe, c. (2002, March 7). The Perspective. Retrieved July 7, 2010, from Africa & Regional integration moving forward: http://www.theperspective.org/movingforward.html

Bank of International Settlement. (2008). Convergence in the SADC and African economic integration process: prospects and statistical issues.

Banque-France. (2006). Situation of the EU countries upone joining the Euro Area.

COMESA Programmes. (2009). Retrieved July 30, 2010, from COMESA Customes Union: http://programmes.comesa.int/index.php?option=com_content&view=article&id=119&Itemid=73&lang=en

EU business. (2010, April 12). Euro zone will not allow any member to default. Retrieved June 20, 2010, from EU buiness: http://www.eubusiness.com/news-eu/finance-economu.43z

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European Central Bank. (2004, April). Measuring financial integration in the Euro area Occasional Paper Series 14. Retrieved June 15, 2010, from European Central Bank: http://www.ecb.int/pub/pdf/scpops/ecbocp14.pdf

European Central Bank. (2004, April). Occasional Paper Series 14. Retrieved June 15, 2010, from European Central Bank: http://www.ecb.int/pub/pdf/scpops/ecbocp14.pdf

Fouroutan, F. (1993). Regional integration in Sub-Saharan Africa: past experience and future prospects. Cambridge University Press.

IMF. (2008). Regional Economic Outlook: Sub-Saharan Africa. Washington, D.C.: IMF.

IMF. (2009). The Southern Afican Development Community's Macroeconomic Convergence Program: initial performance. Washington, D.C.: African Department.

Kühnhardt, L. (2008). African Regional Integration and the Role of the European. Germany: Center for European Integration Studies.

Lunogelo, B., & Mbilinyi, A. (2009). Convergence of COMESA-SADC-EAC regional frameworks. Tanzania: Economic and Social Research Foundation.

Maruping, M. (2005). African in the world economy - The national, regional and international challenges, Chapter 11. The Hague: Fondad.

Mboweni, T. (2002, October). Central Bank Articles and Speeches. South Africa's integration into the global economy .

Mitchell, D. (2010). SADC Integration Project Feedback to commercial banks. Centurion: SADC.

Nokaneng, S. (2009). The concept of economic integration with specific reference to financial integration in Southern Africa. University of Pretoria.

Nuti, M. (2010, March 9). Three cheers to democracy. Retrieved June 20, 2010, from Transition: http://dmarionuti.blogspot.com/2010/03/iceland-three-cheers-for-democaracy.html

Pressly, D. (2009, April 14). SADC central banks work towards single payment system. Retrieved July 10, 2010, from Business Report: http://www.busrep.co.za/index.php?fSectionId=566&fArticleId=4933426

SADC. (2006). Finance and Investment Protocol. Botswana: SADC.

SADC. (1999). Regional Indicative Strategic Development Plan. Botswana: SADC.

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SADC. (2010). Review of Macroeconomic Convergence Performance for 2009. Botswana: SADC.

SADC. (2009). Review of the SADC Macroeconomic Convergence Programme for 2008. Botswana: SADC.

SADC. (2009). Update on the Impact of the Global Economic Crisis on SADC. Botswana: SADC.

Wakeman-Linn, J. &. (2008). Regional Financial Integration: It’s Potential Contribution to Financial Sector Growth and Development in Sub-Saharan Africa. Tunisia: IMF.

Word Bank. (2007). Convergence Financial Sector intergration in two regions: How creating scale in Financial markets can support growth and development. Washington D.C.: Word Bank.

Zyuulu, I. (2008). Convergence in the SADC and African Economic integration process: prospects and statistical issues. Switzerland: Bank of International Settlement.

ANNEXURE 1

THE PESTEL MODEL GUIDING QUESTIONS

POLITICAL QUESTIONS

1. What are the envisaged political and economical policy changes in SA as a result of SADC financial system integration? How could this impact the banking sector in South Africa?

2. Is there a political willingness to integrate?

3. What are the dynamics (positive and negative) within the SADC region that could impact the financial integration?

4. What factors could lead to an exclusion of some of the SADC states? Including voluntary exclusion.

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5. Sovereign monetary policy vs. Domestic momentary policy, what is the impact? Will this work for SADC.

6. How would SADC financial system integration impact on the existing trade embargos and treaties that SADC countries have entered into with other states? What could be considered as the critical success factors and prerequisites for the SADC integration from the political perspective? Other than the ones that SADC has already defined.

7. What are countries that are most likely to meet the pre-requisite set by SADC towards financial integration?

8. Given the current dynamics within SADC, is financial system integration a viable move for the region?

9. Do you think South African banks have any reasons to worry about the envisaged SADC financial integration?

ECONOMIC QUESTIONS

1. Based on the current economic growth levels in the SADC region and within individual SADC states, is financial system integration an appropriate strategy for the region? Would it lead to economic growth and development for the region and countries within the region or could it destroy values for some of the countries?

2. What could be the envisaged political and economic policy changes in SA as a result of SADC financial system integration? How could this impact the banking sector in South Africa?

3. Could the financial system integration call for the alignment of both the political and economic policies in the SADC states? What could be challenges or benefits towards this alignment?

4. How will the relaxation in exchange controls amongst SADC countries impact the South African banking sector? Positive and Negative?

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5. SADC plan is to have a single currency by 2018, in your view is this achievable given that the pre-requisites could quite be a challenge for some of the SADC countries? Which countries will more likely not qualify? What could be the implications?

6. Could there be an envisaged impact on the SA Banks’ rating as a result of the integration?

7. Could there be an impact on the banks’ market capitalisation and asset value as a result of the integration?

8. The SADC integration would be a costly exercise for banks? Is there a plan to engage the shareholders, particularly ICBC?

9. Could SADC financial integration affect the bank’s global positioning & competitiveness? If yes, how?

10.Some of the countries in SADC have a currency that is not tradable internationally, would this be a factor?

11.The impact to the banking sector as a result of the devalued rand? Dilution of the asset base as a result of the single currency. How will the international partners respond, Barclays for ABSA? ICBC for Standard Bank?

12.How will the big 4 banks respond to the changes on transaction clearing as there would be more clearing house to choose from?

13.What would be the impact as a result of an increased inflation rate, which could have impact on the repo and lending rates.

14.Who will carry the currency risk?

15.Can banks handle/absorb the impact, comply and qualify and defined times?

16. Is EMV part of the requirement for the integration?

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17.How involved are the banks in the SADC financial integration planning and process.

18.How would the SADC financial integration impact on the grading of the South African banks? And possible impact on the share prices? How could the impact be minimised?

SOCIAL QUESTIONS

1. What would be the impact on the bank due to free movement of labour in the SADC region? Do you foresee any impact on retaining skills and knowledge?

2. Given the potential clients can now be citizens of any SADC country, who owns the customer? What will be the impact of bank location being remote from physical customer location?

3. What will be the impact on current customers?4. Given the multiplicity of languages across the SADC region, what communication

policy will be adapted to target new clients in the region?

5. What will the impact of SADC integration on Social responsibility for banks? Investing local or global?

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TECHNOLOGICAL QUESTIONS

1. Single payment system, similar to that of Europe (SEPA) or are we looking a totally different model.

2. Information security, fraud cases and forensics. Who takes ownership, responsibility?

3. Infrastructure – readiness of level. Who determines the standard?

4. How is the cost determined to invest in the technology?

5. How do we get to a decision on where this would reside, country?

6. Clearing houses. Sufficient to cater for an integrated system. Do we need country specific?

ENVIRONMENTAL (business)

1. How will the SADC financial integration impact the business environment for SA banks?

2. What Expansion opportunities will the SADC financial integration bring?

3. What opportunities does the bank see in regional and domestic competitiveness? Will the bank launch an aggressive new business acquisition strategy?

4. Are the any other banks (apart from SA banks) in the SADC region which is considered as competition?

5. Will Banks compromise on fees – loss of cross boarder revenue

LEGAL / REGULATORY

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1. Will this impact on policies? Fiscal, Capital requirements, Consumer laws, compliance. How will this impact on the Registrar of banks.

2. What will happen to current regulatory authorities after integration?

3. Post integration, will exchange controls and the monetary policy be determined by SADC, or still maintained by each participating country? Will the repo rate be centrally determined?

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ANNEXURE 2

EURO ZONE GUIDING QUESTIONS

INTERVIEW WITH NETHERLANDS CENTRAL BANK

Objective of the interview

1. In understanding the journey to the Euro Zone Integration; what would you describe as the key milestones that had to be achieved for the Euro Zone Financial Integration to be a success?

2. How many states needed to be on board for the Euro Zone Integration to be a success?

3. What were the qualifying criteria set for the different states? Was it the same for all the states?

4. What were the key political considerations that needed to be taken into account during the Euro Zone Integration?

a. Different political agenda’s may be? b. Language Issues?c. Labour force?

5. Was there governance was put in place to drive the Euro Zone Integration and for arbitration? If yes what was it?

6. The United Kingdom; what was their main reason for not being part of the integration?

7. Did their exclusion impact the Euro Zone Integration in anyway?

8. What governance is now in place to ensure that the member states keep to their commitments and qualifying criteria.

9. What would be the consequences if the member states default?a. How is the issue of Greece being dealt by the Euro Zone and what has

been the impact thus far?

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10.How is alignment in economic and political policies driven or enforced within the Euro Zone?

11.Did the Euro Zone financial integration change any regulations relating to the financial sector? If so, what were the changes?

12.Are the central bank lending rates centrally determined?

13.How did the banking sector respond in Netherlands / Euro with regards to the Euro Zone integration? Any set demands?

a. What were the envisaged opportunities? Have they been realised?b. What were their main concerns? How were these overcome?

14. In reality how was the banking sector impacted in terms of the Euro Integration; in terms of the

a. Market; did the banks take advantage of the broader market? What could be defined as impact to banks that were already broadly operating or represented in Europe?

b. Competition; was the competition broadened?c. Did the banking sector incur any loses as a result? Did some banks lose

any value as a result? Any changes on the market share?d. Cost of Integration; what was the cost of integration in terms of the

information systems and infrastructure (Both for the financial sector and the central banks)?

15. In your view is the Euro Zone Integration working for the financial institutions; Netherlands in particular?

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ANNEXURE 3

INTERVIEWS HELD

# Interviewee Organisation Title

1 Mike Turner Standard Bank Africa Operations director

2 Joleen Young Standard Bank Africa Manager Payment Business Systems

3 Charl Ackerman Standard Bank Africa Manager Payment Business Systems

4 Brian Le Sar Standard Bank Africa Director Card and Payments

5 Ballim Goolam Standard Bank Group Group Economist

6 Arthur Cousins Private – Former Director Standard Bank

SADC Financial Integration Consultant

7 Juliet Kanuki South African Banking Association

General Manager Banking Financial Services

8 Stuart Grobler South African Banking Association

Senior General Manager Banking Financial Services

9 Paul Sitotombe Standard Bank Africa IT Head of Solution Design

10

Michael van Central Bank Netherlands Director Policy Making

11

Project Manager SEPA

Central Bank Netherlands Project Manager SEPA

12

Gops Pillay South African Reserve Bank

Project Manager SADC Financial Integration

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Glossary

# Abbreviation Definition

1 BIC Bank Identifier Code

2 CMA Common Monetary Area

3 COMESA Common Market for East and Southern Africa

4 EAC East African Community

5 ECB European Central Bank

6 ECCU Eastern Caribbean Currency Union

7 ECOWAS Economic Community of West African States

8 EMI European Monetary Institute

9 EMU European Monetary Union

10 ERM II Exchange Rate Mechanism

11 EU European Union

12 EUN Economic union

13 FIP Finance and investment protocol

14 FTA Free trade area

15 GDP Gross Domestic Production

16 IBAN International Bank Account Number

17 MEC Macro-economic Convergence

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18 MENA Middle East and North Africa

19 MUN Monetary union

20 PTA Preferential trade agreement

21 REC Regional Economic Community

22 RISDP Regional Indicative Strategic Development Plan

23 SADC Southern African Development Community

24 WAMZ West African Monetary Zone

47 | P a g e