South Africa scores for global integration

1 December 2014

South Africa’s economy is more connected to the global economy than its peers in the rest of sub-Saharan Africa, according to the Visa Africa Integration Index.

The country scored the highest on the index, improving from 61.1 at the start of 2011 to 66.7 at the end of 2013.

The index tracks 11 countries divided into 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% of the total population.

South Africa scored highest amongst the 11 countries for global integration with a score of 42.6 out of 50. Kenya scored highest for regional integration, scoring 27.5 out of 50, narrowly overtaking Ghana. But all 11 countries were a long way off the global median of 50.

Visa in South Africa launched the second annual Visa Africa Integration Index on Tuesday, 25 November. It measures the degree of economic integration within key trade corridors of sub-Saharan Africa, namely West Africa, East Africa and Southern Africa.

Data

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

Mandy Lamb, the country manager of 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% 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.

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

Buoyant

Lamb noted that it was widely expected that buoyant economic growth would continue for the foreseeable future and it was likely that the African economy would achieve a growth rate approaching 5.5% in 2014, with a collective gross domestic product of over $1.9-trillion – a figure that is expected to exceed $2.6-trillion by 2020.

The study was carried out in conjunction with Prof Adrian Saville, visiting professor of economics at the Gordon Institute of Business Science (GIBS) in Johannesburg, 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, financial integration and the movement of capital, the flow of information and knowledge, and the movement of people. This model assigned a numeric value to the level of integration, with the global median score being 100.

Findings

Despite a modest base, the countries surveyed have undergone positive structural transformation over the past decade. All 11 countries showed improvements in economic integration.

In some cases the improvements were modest: Zimbabwe and Uganda recorded gains in integration that amount to 0.5% a year and 1.2% a year, respectively. In other cases the gains were swift and substantial. Rwanda’s index score rose by just less than 20% over the three years. Angola, Ghana, Kenya, Nigeria, South Africa and Zambia all recorded robust single-digit improvements in economic integration.

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

Structural improvements

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

Notably, none of these scores achieved the global median of 50, pointing to the need for further structural improvements.

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

Source: Visa