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COM/TCM/MF/VII/2

November, 2004

Original: ENGLISH

COMMON MARKET FOR EASTERN

AND SOUTHERN AFRICA

Seventh Meeting of Finance Ministers

Lusaka, Zambia

17November, 2004

REPORT OF THE SEVENTH MEETING OF MINISTERS OF FINANCE

04-aan/bmc

INTRODUCTION

1. The Seventh Meeting of the of Ministers of Finance was held from 17 to 18 November 2004 in Lusaka, Zambia.

B. ATTENDANCE, OPENING OF THE MEETING, ELECTION OF THE BUREAU AND ORGANISATION OF WORK

Attendance

2. The meeting was attended by delegates from Burundi, Democratic Republic of Congo, Egypt, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. The meeting was also attended by the following COMESA institutions: The COMESA Clearing House, ZEP-RE PTA Reinsurance Company Eastern and Southern African Trade and Development Bank (PTA Bank), the African Trade Insurance Agency (ATI) and African Union. The following institutions also attended the meeting: African Union, the Association of African Central Banks (AACB), Central Bank of Central African States (BEAC), United Nations Economic Commission For Africa (UNECA – EA SRO, UNECA - SA), and Bank of Tanzania. The list of participants is at Annex II of this report.

Opening of the Meeting (Agenda item 1)

3. His Honour, Mr Lupando Mwape, Vice President of the Republic of Zambia, officially opened the meeting. In his opening statement, he welcomed the delegates to Lusaka, Zambia.

4. The Vice President stated that COMESA had made great strides in the economic integration of the region. In this regard, he noted that COMESA now had a Free Trade Area in place and a number of trade facilitation measures. The next milestone to be achieved is the Customs Union and Common Investment Area. He pointed out that Customs Union would enable member countries to generate higher output, stimulate growth and increase indirect and direct tax revenues by generating larger trade volumes among member countries as well as with the rest of the world. He called on member states to take all necessary measures to increase the level of trade among themselves, in order to enable the region to craft a common external commercial and trade policy that is appropriate for countries in a Customs Union.

5. He pointed out that sound macro-economic policies and increased investment outlays for essential infrastructure are likely to trigger a positive response from the private sector in the form of additional productive capacity which in turn may lead to increased regional trade. He added that while it was the responsibility of member countries to implement programmes and measures for strengthened and effective regional integration, cooperating partners also needed to play a crucial role by facilitating the region’s integration into the global economy by providing appropriate supportive measures.

6. In concluding his statement, the Vice President emphasized the need for the pursuit of the monetary integration agenda as a necessary instrument to mitigate the negative impact of globalisation.

7. The Secretary General of COMESA, Mr Erastus J O Mwencha, made a statement before the official opening by the Vice President. The Secretary General stated that one of the most important critical factors for enhanced intra-regional trade and the establishment of dynamic common market is monetary integration through financial and monetary cooperation. This, he said, would accelerate the rate of economic development by expanding trade, augmenting the rate of capital accumulation, promoting rapid industrialisation and bringing about external viability. He, therefore, pointed out that an integration process that relegates monetary integration to the background is bound to face problems.

8. The Secretary General emphasised the need for diversification in export products and markets. For this to happen, domestic policies must be productive and constructive. In this context, the region should address the challenges to reduce poverty and achieve sustainable economic growth in order to achieve the Millenium Development Goals. In this regard, he emphasised the important role that the international community should play in reducing volatility in global economic relations and in limiting the adverse impact of globalisation on the growth prospects of the region’s economies.

9. He reported that the project design of the Regional Payment and Settlement System (REPSS) had been completed and would soon be implemented. He pointed out that REPSS would facilitate and promote trade among countries of the region and enable member States to save scarce foreign exchange.

10. Dr. Maxwell M. Mkwezalamba, Commissioner for Economic Affairs of African Union, also made a statement. He stated that the creation of the COMESA Free Trade Area in October 2000 and the decision to establish the COMESA Customs Union were visible landmarks and significant achievements of the COMESA regional integration agenda. He pointed out that with solid political and legal back-up, monetary cooperation can reinforce continental integration initiatives such as the establishment of the African Central Bank, the creation of the African Customs Union, Common Market for Staple Foods and the African Commodity Exchange, which are to be duly implemented as directed by the AU Summit and Ministerial Conferences.

11. He pointed out that the African Union Commission and the RECs will need to enhance their cooperation to ensure the realisation of the continental development and integration goals. Regarding macro-economic convergence, he called on COMESA member States to show political will and commitment towards strict compliance with the set convergence criteria. He informed the meeting that the African Union shares the concern and interest of COMESA in streamlining trade policies into national development plans. He added that the challenge facing Africa is to seize the opportunities and minimise the risks of globalisation and promote industrialisation. He informed the meeting that the Extra-Ordinary Summit of the African union on Employment and poverty which was held in Ouagadougou, Burkina Faso, from 3-9 September, 2004, adopted a Declaration, a Plan of action and an implementation, monitoring and follow up mechanism.

12. In concluding his statement, the AU Commissioner emphasised the importance of COMESA as an important integration block for building the African Union, and that its integration programme, particularly in the area of money and finance, was in line with the integration road map as laid down in the Treaty establishing the African Economic Community (AEC).

13. The Minister of Leisure and Tourism of Mauritius, Honourable A. K. Gayan, moved a vote of thanks to the Vice President of the Republic of Zambia for his instructive and inspiring address. In so doing, he expressed gratitude to the Government of the Republic of Zambia for hosting the meeting and the warm hospitality extended to all delegates. Honourable A.K. Gayan observed that the numerous crises on the continent were undermining economic development, but noted that financial and economic structural adjustment programmes, democracy, good governance, rule of law were on the march to build investor confidence. He remained confident that more effective targeted, home grown and visionary programmes for regional integration in COMESA held the highest prospects for growth, development and poverty reduction.

14. In conclusion, he extended to the Vice President and to the people of Zambia the greetings of the season and merry Christmas and a happy new year.

Election of Bureau (Agenda item 2)

15. The Ministers elected the following to serve on the Bureau of the Committee for one year.

1 Chairman: Zambia

Vice Chairman: Sudan

Rapporteur: Mauritius

16. In his handing over speech, the outgoing chairman of the COMESA Ministers of Finance and Minister for Finance of Kenya, singled out two critical developments within the COMESA Monetary and Fiscal Harmonization Programme that took place during the his tenure. These were: the Regional Payments and Settlement System (REPSS); and Macroeconomic Convergence and Exchange Rate Mechanism for COMESA.

17. With regard to the REPSS, the outgoing chairman noted progress has been made in the implementation of REPSS as contained in the Report of Ninth Meeting of the Committee of Governors that was an agenda item in this meeting. He expressed confidence that the Committee of Governors will oversee and guide the work of REPSS to ensure that it is operational by the set deadline of 2005. He also reported that significant progress has been made in the introduction of Africa Commerce Exchange (ACE) services in Member States that still needed SWIFT connections. In addition, he reported that the Africa Commerce Exchange was actively marketing the leading Anti-Money Laundering Software Office of Foreign Assets Control (OFAC) to both client banks and new subscribers.

18. With regard to Macroeconomic Convergence and Exchange Rate Mechanism for COMESA, the outgoing chairman reported that the Task Force on Monetary Cooperation had completed undertaking some of the tasks given by the sixth meeting of the ministers of finance in November 2003 held in Nairobi, Kenya. He indicated that a major recommendation of the Task force was the need to fast track and stagger the implementation of the COMESA Monetary and Fiscal Harmonization Programme into three stages commencing in 2005 through to 2018. Each of these stages will be expected to build on the success of the previous one to enable the COMESA Monetary Union, being a building block of the African Monetary Union, to be in place at least three years before the latter is established. Another major recommendation of the Task Force the outgoing chairman singled out is the need to adopt a revised set of macroeconomic convergence criteria which each COMESA Member State will be expected to meet. The criteria have been classified into primary and secondary categories. The primary criteria will be the primary preconditions for convergence, which need to be met while secondary criteria will reinforce the primary criteria.

19. While recognizing that the political momentum to actualize the COMESA Monetary Union is in no doubt stronger now than anytime in the past, the outgoing chairman observed that closer economic and monetary cooperation would not only bring COMESA people together, but would lift them from the suffocating valley of want to the sunlit mountain of prosperity. He further observed that, if economic and monetary union are to be realized in COMESA, it is crucial that participating member states work diligently to achieve a high degree of sustainable convergence in terms of low and stable inflation, prudent fiscal policies and exchange rate stability. He also observed that while compliance with the new convergence criteria will not be an end by itself, it will be good for the region as it will establish the conditions necessary for healthy, lasting and job-creating growth.

20. The outgoing chairman also observed that as COMESA member states work towards macro-economic convergence, exchange rate union as well as currency convertibility, it is important to bear in mind the fact that this does not directly imply uniformity. Instances of trade imbalances amongst member States will still prevail as different countries are at difference levels of development. Some countries will have absolute advantage over others in some sectors, while others will enjoy comparative advantage but things will normalize in the long run. He therefore called upon member countries to re-double their efforts to increase economic activities in region notwithstanding the danger posed by the current increase in oil prices and high frequency of drought in many of our countries, which has indeed precipitated some inflationary effects into our region.

21. To this end, the outgoing chairman reiterated the need to expedite the implementation of all COMESA Programmes in order to minimize the damage precipitated upon COMESA region by such shocks. In particular, Governments must endeavor to ensure that the COMESA protocols, especially those relating to free movement of goods and people are unreservedly implemented. This is because border restrictions and closures and non-tariff barriers constitute serious impediments to intra regional economic cooperation and economic growth. In addition, Governments should put greater efforts in rehabilitating and expanding the road network and educating COMESA citizens about the virtues of free trade. A critical factor to realization of the above is political commitment. We should strive seek political goodwill in implementing all these programmes in our continuing endeavor to establish a Monetary Union by the proposed deadline.

Adoption of the Agenda and Organisation of Work (Agenda item 3)

22. The Ministers adopted the following agenda:

1. Opening of the meeting;

2. Election of the Bureau;

3. Adoption of the Agenda and Organisation of Work;

4 Consideration of the Report of the Ninth Meeting of the Committee of Central Bank Governors on:

a) Progress Report on the Regional Payments and Settlement System (REPSS);

b) Macro-economic Convergence Criteria and Exchange Rate Mechanism for COMESA;

c) Report by member countries on their recent Macro-Economic Developments;

d) The COMESA Common External Tariff/Customs Union;

e) COMESA Fund;

f) COMESA Export Led Strategy ;

g) Draft Investment Framework Agreement on the COMESA Common Investment Area;

h) Study on Poverty Reduction Strategies in Eastern and Southern Africa:

i) Report on COMESA Financial Institutions;

i) Report of the Executive Secretary of the Clearing House;

ii) Activities of PTA Reinsurance Company; and

iii) African Trade Insurance Agency (ATI)

j) IMF/World Bank Financial Sector Assessment Programme (FSAP)

5. Any Other Business

6. Adoption of the Report and Closure of the Meeting

23. The Ministers agreed on the following hours of work:

Morning: 09.00 -13.00 hours

Afternoon: 15.00 -18.00 hours

1 C. ACCOUNT OF PROCEEDINGS

Consideration of the Report of the Ninth Meeting of the Committee of Central Bank Governors (Agenda Item 4)

24. Dr. Caleb Fundanga, Governor of the Bank of Zambia and Chairman of the Committee of Central Bank Governors, presented the report of the 9th meeting of his Committee to the Finance Ministers. In so doing, he highlighted the issues discussed and recommendations made by the Governors.

25. The Ministers considered the report of the Governors meeting as follows:

Progress Report on the Regional Payment and Settlement System (REPSS)

26. The Ministers noted that the Sixth Meeting of the Committee of International Payments Experts from Central Banks was held on 16-17 September 2004. During their deliberations, work carried out on the Regional Payment and Settlement System (REPSS), as mandated by the Governors at their Eighth Meeting held in Nairobi from 14-15 November 2003 and under the approval and guidance of the Bureau, was reviewed.

27. The Ministers also noted that (i) Governors had approved REPSS as a Multilateral Netting System with End-of-Day settlement in a single currency (US$); (ii) REPSS would bring about reductions in settlement transactions; liquidity requirements to secure settlement; exposure to foreign counter-parties; foreign correspondent banking charges for covering confirmation/drawings of LCs by correspondents as well as transactional and operational costs. It would also switch relationships for trade transactions from Commercial Banks/Foreign Correspondent to Commercial Banks/ Central Bank for intra-COMESA trade; (iii) Exporter’s currency would be quoted on LCs; transactions would be settled at spot T+0 value T+2 at the agreed spot exchange rate; (iv) A single currency (US$) would be used for net settlement and a single nostro correspondent for the net settlement currency; (v) The COMESA Clearing House would act as Agent of the Central Banks; (vi) Bilateral limits (Net Debit/Net Receiver) would be set by each Central Bank at the Clearing House; (vii) Each transaction would be converted to the settlement currency at the prevailing quoted exchange rate and the importer/exporter would retain the foreign exchange risk; (viii) Bilateral agreements between Central Banks would be put in place and the amount of central bank exposure limited to further ensure successful daily settlement; and (ix) Fees would be assessed on a percentage basis with some minimum amount to deter low value transactions.

28. The Ministers were informed that the following work had been pursued in accordance with the approved Action Plan: (i) A Draft Request for Proposal (RFP) Document had been prepared and circulated to members of the Committee of International Payments Experts from Central Banks and also sent to the IMF and World Bank. This document was reviewed, after incorporation of positive comments from IMF and inputs from Central Banks Payments Experts at the Sixth Meeting of the Committee of Payments Experts. It is worth noting that COMESA and the Committee of Central Bank Payments Experts received praise and commendation from IMF for the preparation of a very innovative, comprehensive proposal based upon sound payments principles compliant with BIS Core Principles. The IMF further pointed out that most importantly REPSS offered significant potential benefits for participants and the public in general; (ii) In order to provide legal certainty to the rights and obligations of all member country participants, the Terms of Reference for a legal issues study had been prepared and submitted to the COMESA Secretariat for possible EU/Commonwealth Secretariat funding; and (iii) An appropriate Letter of Credit, in line with international practice, that would be used under REPSS had been designed.

29. The following tasks would be undertaken during the next phase of implementation of REPSS: (i) An Information Sheet for Commercial Banks on REPSS features would be developed; (ii) The Request for Proposal (RFP) Document would be finalised and published upon approval by EU; (iii) National Working Groups (NWG), under the guidance of a Senior Payments Expert in the Central Bank of each country would be set up for putting in place and promoting REPSS within national boundaries and monitoring and guiding its evolution; (iv) The REPSS Legal Framework and Trust Fund Rules for Utilisation and Replenishment would be finalised; (v) Commercial Bank Information Sessions at Country Level would be held; (vi) Vendor proposals would be received and shortlist prepared; (vii) Presentations by Selected Vendors would be organised and sites visits, wherever required, planned; (viii) Establish pilot phases for access by all participating for Central Banks evaluation; (ix) System evaluation and installation of Proof of concept would then be started; (x) Most preferred solution selected -off shelf or develop; (xi) Solution as well as implementation plan presented for approval by the Bureau of Governors; (xii) Marketing/Communication plan prepared; (xiii) Bilateral Agreements & Standards & Procedures for the REPSS finalised; and (xv) System would go live.

30. The Ministers took note of the above progress report on REPSS.

Decisions

31. The Ministers decided as follows:

i) Agreed that the resources from the PTA Travellers Cheques Fund be deposited into an account held by the Committee of Central Bank Governors;

ii) Further work as detailed out at paragraph 29 above be carried out; and

iii) The Bureau of Governors should oversee the above process and guide REPSS through to its operational stage.

Macro-economic Convergence Criteria and Exchange Rate Mechanism for COMESA

32. Under this agenda item, the Ministers recalled the establishment of the Task Force which was assigned by the Sixth Meeting of Ministers of Finance to revise the macro-economic convergence criteria for COMESA and to undertake a study on a COMESA Exchange Rate Union and issues relating to currency convertibility. It was reported that the Task Force held two meetings in the year 2004. The First meeting assigned different tasks to the members of the Task Force to revise the macro-economic convergence criteria and to review experiences of Kenya and Uganda in the implementation of Currency Convertibility. The Second Meeting of the Task Force, which was held in Cairo, Egypt, from 20-21 September 2004 reviewed the studies undertaken by members of the Task Force, and came up with recommendations aimed at enhancing monetary cooperation in the COMESA region.

33. It was reported that, based on the review of the study on recent macro-economic developments, policy and operational issues on the management of foreign exchange, and monetary policy instruments in member countries, the Task Force observed that most member countries missed the fiscal criteria and fully agreed that fiscal discipline should be the overriding principle for achieving macro-economic convergence in the COMESA region. It, was therefore, found necessary to revise the existing convergence criteria and to make it consistent with the African Monetary Co-operation Programme. The revision will allow for greater flexibility in order to take into account the actual performance of the member countries and other challenges that they were facing. In order to allow for flexibility, the Task Force agreed that the convergence criteria should be implemented in stages.

34. The Ministers considered the report of the Governors and agreed on the following revised COMESA macro-economic convergence criteria:

Stage 1 (Year 2005-2010)

Primary Criteria

(a) Overall budget deficit/GDP ratio (excluding grants) of not more than 5%;

b) Annual average inflation rate not exceeding 5%;

c) Minimise the central bank financing of the budget towards 0% target; and

d) External reserves of equal to or more than 4 months of imports of goods and non-factor services.

Secondary Criteria

a) Achievement and maintenance of stable real exchange rates;

b) Achievement and maintenance of market based positive real interest rates;

c) Achievement of sustainable real growth rate of real GDP of not less than 7.0%;

d) Sustained pursuit of debt reduction initiative on domestic and foreign debt. i.e. reduction of total debt as a ratio of GDP to a sustainable level;

e) Total domestic revenue to GDP ratio of not less than 20%;

f) Reduction of current account deficit (excluding grants) as a % of GDP to sustainable level;

g) Achievement and maintenance of domestic investment rate of at least 20%;

h) Implementation of the 25 Core Principles of Bank Supervision and Regulation based on agreed Action Plan for Harmonization of Bank Supervision for the COMESA region; and

i) Adherence to the Core Principles for Systematically Important Payments Systems, by modernizing the payment and settlements system.

Stage Two (2011-2015)

Primary Criteria

a) Overall budget deficit/GDP ratio (excluding grants) not exceeding 4%;

b) Annual average inflation rate of not more than 3%;

c) Elimination of the central bank financing of the budget deficit; and

d) External reserves of equal to or more than 5 months of imports of goods and services.

Secondary Criteria

a) Achievement and maintenance of stable real exchange rates;

b) Achievement and maintenance of market based positive real interest rates;

c) Achievement of sustainable real growth rate of real GDP of not less than 7.0%;

d) Sustained pursuit of debt reduction initiative on domestic and foreign debt. i.e. reduction of total debt as a ratio of GDP to a sustainable level;

e) Total domestic revenue of government to GDP ratio of at least 20%;

f) Maintenance of sustainable level of current account deficit (excluding grants) as % of GDP;

g) Maintenance of domestic investment rate of at least 20%; and

h) Gradual liberalization of the capital account.

Stage III. (2016-2018)

Primary Criteria

a) Overall budget deficit/GDP ratio (excluding grants) not exceeding 3%;

b) Annual average inflation rate not exceeding 3%;

c) Elimination of central bank financing of the budget deficit; and

d) External reserves of equal to or more than 6 months of imports of goods and services.

Secondary Criteria

(a) Maintenance of a stable real exchange rates;

b) Maintenance of market based positive real interest rates;

c) Maintenance of high and sustainable real rate of growth of GDP of not less than 7.0%;

d) Sustained pursuit of debt reduction initiative on domestic and foreign debt i.e. reduction of total public debt as a ratio of GDP to a sustainable levels;

e) Total domestic government revenue to GDP ratio of at least 20%;

f) Maintenance of sustainable level of current account deficit (excluding grants) as % of GDP;

g) Maintenance of domestic investment rate of at least 20%; and

(h) Full liberalization of the capital account.

35. The Ministers were informed that the Governors had also made the following recommendations in order to enhance the implementation of the convergence criteria:

a) Harmonisation of the concepts and methodologies as well as statistical frameworks would be critical to the success of the COMESA Monetary Harmonisation programme. In this regard, COMESA member countries should participate in seminars and workshop that would be organised by the African Union in collaboration with the Association of African Central Banks (AACB);

b) Member countries should prepare detailed reports annually on their macro-economic performance and present them to the Monetary Cooperation meetings of COMESA, that are held every year. In their report, they should discuss the reasons that hindered them from achieving some of the convergence criteria and the measures they will put in place to achieve them; and

c) COMESA should organise seminars on monetary policy, in order to enable member countries to implement appropriate monetary policy mix that minimizes interest rate and exchange rates volatilities.

36. The Ministers were also informed that the Governors reviewed the experiences of Kenya and Uganda in the implementation of currency convertibility, and the structure and operational aspects of the Common Monetary Area (CMA). The review indicated the following:

(a) The major problems encountered in the implementation of currency convertibility in Uganda and Kenya were the following:

(i) Imbalances in trade among the partner states: Due to imbalances in trade between Uganda and Kenya, there was less demand for the Uganda shilling in Kenya but more demand for the Kenya Shilling in Uganda. Subsequently, dealers in Kenya quote the Uganda shilling alongside other currencies as per the requirement of the convertibility arrangement but post large spreads between buying and selling rates owing to the risk premium associated with low demand.

(ii) The high cost of currency repatriation due to lack of sufficient correspondent account relationships: This has resulted in central banks repatriating excess holdings on a collection basis. This has costs to both the repatriating central banks in terms of exchange rate risk and insurance costs of transferring cash and the receiving central bank in terms of reserve loss.

iv) Low level of public awareness in the region regarding the convertibility arrangement.

(b) The practical lessons on monetary integration in Lesotho Namibia and Swaziland countries, which hinges significantly on convergence in inflation and interest rates and the free movement of capital were noted.

37. With regard to the successful implementation of currency convertibility arrangement, the Governors agreed on the following:

(i) Intra-regional trade should be significant and not highly skewed in favour of a few countries. This promotes equitable demand for all currencies.

ii) Measures to promote intra-regional trade should be enhanced.

iii) In order to give trust to the arrangement of currency convertibility, all authorised foreign exchange dealers, except for foreign exchange bureaux, should be encouraged to have sufficient correspondent relationships.

iv) Market determined exchange rates and relatively open capital accounts should be put in place in all member States since they are critical to the success of currency convertibility.

v) Sufficient level of public awareness in the region regarding the need for the public to appreciate and understand the underlying advantages of having their currencies to be convertible.

vi) Member states should take necessary measures to ensure stability of their exchange rates.

(vii) The payment and settlement systems should be modernised and made efficient.

(viii) Member countries with geographic proximity and significant level of trade should be encouraged to introduce currency convertibility between their currencies.

38. In the discussions that followed, the Ministers observed that in view of the varying degrees of macro-economic performance and external exposures of Member States, it was necessary to have escape clauses in the form of bands that would allow countries to adjust to external shocks.

39. The importance of prudent fiscal deficit to GDP ratio and maintenance of price stability was emphasized. It was also agreed that Government borrowing from Central Banks would need to be gradually reduced so as to reach zero in a phased manner to achieve fiscal prudence. It was further agreed that fiscal deficit, excluding grants, to GDP ratio is one appropriate measure of fiscal prudence and sustainability, given that the volume of external grants are always an exogenous variable and cannot be predicted. This ratio is also very reliable for inter-country comparisons of fiscal deficits in the region.

40. The secondary criterion of Domestic Revenue to GDP ratio of 20 per cent as a minimum should also be achieved in a phased manner.

41. With regard to the recommended inflation convergence criterion of 5 percent in the first stage and 3 percent in the second and third stage, one of the delegates stated that an inflation rate of around 10 percent could be considered as acceptable in the pursuit of pro-poor policies and the achievement of the Millennium Development Goals. However, the meeting felt that an inflation rate of 10 percent was too high.

42. It was also suggested that convergence criteria should rather be based on weighted average of the best performers within the COMESA region.

43. As regards to the study on Exchange Rate Mechanism which was assigned to be undertaken by the Task Force, the COMESA Secretariat informed the meeting that it had approached the IMF and was waiting for a response. The Secretariat will also approach the European Central Bank for this study.

44. Some delegates were of the view that the Central Banks in the region had the capacity to undertake such a study and could assign experts to undertake this task. It was suggested that the findings could then be validated by external bodies. In this context, it was felt that the European Central Bank would provide more valuable technical assistance on the aspect of the Exchange Rate Mechanism.

45. Other delegates reiterated the complexity of the study and proposed that this should be undertaken by an expert with vast experience in the area of exchange rates. In this regard, it was pointed out that IMF had a wealth of experience in this field.

Decisions

46. The Ministers decided as follows:

(i) The convergence criteria proposed under paragraph 34 be adopted;

(ii) The proposals under paragraph 37 for successful implementation of currency convertibility be adopted;

(iii) In view of the varying degrees of macro-economic performance and external exposures of Member States, escape clauses should be allowed in the form of bands to enable countries to adjust to external shocks.

(iv) The Secretariat should request the European Central Bank for technical assistance to undertake the study on the Exchange Rate union which would be submitted to the Task Force for review;

(v) Implementation of the monetary integration programme should be accelerated to achieve monetary union by 2018, in order to be consistent with the target date of the African Monetary Union;

(vi) Harmonization of the concepts and methodologies as well as statistical frameworks would be critical to the success of the COMESA Monetary Harmonization Programme. In this regard, COMESA member countries should participate in seminars and workshop that would be organised by the African Union in collaboration with the Association of African Central Banks (AACB);

(vii) Member countries should continue to prepare detailed reports annually on their macro-economic performance and present them to the Monetary Cooperation meetings of COMESA every year. The reports should include reasons for not achieving some of the convergence criteria and the measures they will put in place to achieve them;

(viii) COMESA should organize seminars on monetary policy, in order to enable member countries to implement appropriate monetary policy mix that minimizes interest rate and exchange rates volatilities; and

(ix) COMESA Secretariat should present a comprehensive progress report at the end of each stage assessing the achievement of macro-economic convergence.

Report by Member Countries on their Recent Macro-economic Developments

47. Member States reported on their performance regarding macro-economic convergence as contained in Annex I of this report.

The COMESA Common External Tariff/Customs Union

48. The Ministers noted the outcome of the Second Technical Workshop on the CET and the Customs Union and of the Trade and Customs Committee meetings held from 8-10 November 2004 and 11th November 2004, respectively. They were informed that the workshop was held pursuant to the decision of the Seventh Meeting of Council of Ministers held in Kampala, Uganda from 4 - 5 May, 2004 regarding further work on the Common External Tariff and the Customs Union. The Trade and Customs Committee had considered the Report of the Second Technical Workshop on the CET/CU and had noted the principles proposed for structuring the COMESA CET, and the status of the national consultations and studies on the CET.

49. The Trade and Customs Committee had also considered the proposals from the workshop on a possible CET structure and had recommended that:

❑ A COMESA CET should be taken as long-term target for member States;

❑ In the short to medium term, member States should work towards harmonizing their external tariff as a transition strategy towards realising the COMESA CET as follows:

|Category |Range for tariff harmonization |CET target rate |

|Raw materials |0% to 5% |0% |

|Capital goods |0% to 5% |0% |

|Intermediate goods |10 to15% |Not agreed (but see country preferences) |

| |(See 58b of 2nd Workshop Report | |

| |on CET) | |

|Final goods |20 to 40% |Not agreed (but see country preferences) |

50. The Trade and Customs Committee had also discussed the submissions on the COMESA Fund from the workshop and had recommended that:

i) member states which have not yet signed or ratified the Protocol for the establishment of the COMESA Fund should do so before June 2005;

ii) upon ratification, member States should pay their contributions to the Fund; and

iii) the COMESA Secretariat should seek additional support for the Adjustment Facility of the COMESA Fund to ensure that the Fund is not divisive.

51. Regarding future work on the COMESA Customs Union and the CET, the Trade and Customs Committee had recommended to Council, implementation of the following CET short-term road map:

Short-term CET road map

|Action |Timetable |

|Completion of National studies and Consultations on CET rates |31st January 2005 |

|National consultations on convergence timetable to CET ranges |31st January 2005 |

|and target rates | |

|Submission of results and proposals to Secretariat for |14th February 2005 |

|circulation to member States | |

|Third Technical workshop on CET |March 2005 |

| Ratification of COMESA fund |30th June 2005 |

|Study on alternative sources of revenue |Not given |

52. The Ministers noted the report.

53. In the discussion that ensued, the Ministers stressed the need for information sharing between all economic ministries as the CET process moves forward. In this regard, they stressed the need for consultations between Ministers of Finance and Trade and Industry Ministers, prior to the finalisation of an initial COMESA CET to be recommended to Council.

Decision:

54. That a special meeting of Ministers of Finance be convened prior to the next Summit to consider the CET.

COMESA Fund

55. Ministers noted that the COMESA Fund had two components, the first part dealing with the Adjustment Facility and the second part dealing with the Infrastructural Fund.

56. It was noted that the Adjustment Facility is designed to utilise the Euro 50m allocated to budgetary support in the EDF9 RIP, hence the need for specific eligibility criteria. It was also noted that the Secretariat has taken note about the concerns of Council about certain conditions and have modified the criteria accordingly.

57. The Ministers were informed that the COMESA Fund Protocol was signed by twelve member States at the policy organs meetings held in Addis Ababa in May 2002 and 3 member States (Ethiopia, Kenya and Sudan) have since ratified the Protocol and Kenya has started to make financial contributions. The Protocol needs to be ratified by seven member States to come into force.

Decisions

58. The Ministers made the following decisions:

(i) Endorsed the Adjustment Facility mechanism.

ii) Member States which have not yet signed or ratified the Protocol for the establishment of the COMESA Fund should do so without any further delay.

iii) Upon ratification, member States should pay their contributions to the Fund.

iv) The COMESA Secretariat should seek additional support for the Adjustment Facility of the COMESA Fund to ensure the availability of adequate resources to meet the requirements of the member States.

v) The UAPTA Travellers Cheques Fund be used with the approval of the Committee of Central Bank Governors.

COMESA Export-Led Strategy

59. Under this agenda item, the Ministers were informed that while COMESA had achieved a great deal in creating the necessary conducive environment for increasing trade among the member States, the level of intra-COMESA trade remained at the low level of 7% as a proportion of the total global trade of the member countries. It was pointed out that this was due to the fact that the countries of the region produce similar primary commodities and rely on a few primary products for their exports. In addition, the lack of foreign exchange, credit facilities, export credit guarantee schemes and market information had contributed to the low level of intra-regional trade.

60. Given the crucial importance of exports in economic growth, it was imperative that COMESA diversifies away from primary commodity dependence and implements an export-led industrialisation strategy. The aim was to develop the manufacturing sector and increase the export of value added products. This would create employment, increase foreign exchange earnings, generate economic growth and reduce poverty.

61. The COMESA Secretariat had, therefore, conceived an export-led industrialization project. The project focus was on cotton, horticulture, tea, coffee, tobacco, tourism, jewellery and industrial minerals, fuel, food, infrastructure and printing. The approach was regional value chain production.

62. For the project to succeed, a number of critical measures would be undertaken. These included entrepreneurship development and innovative ways of financing such as venture capital, economic empowerment schemes, and provision of cheap credit. A financing vehicle would also be put in place.

63. To get the project off the ground, project promoters would be identified There would be regional promoters for the Northern, Eastern, Southern and Island parts of COMESA.

64. During the course of the discussion, it was pointed out that export diversification was a very complex issue and needed to be fully addressed. Diversification in the agricultural sector, for example, may encounter bottlenecks when exporting value added products because of market access problems like Sanitary and Phyto-sanitary requirements that may be very difficult to comply with.

65. It was also suggested that since member countries had a huge resource base in fishing, the value addition study should also include this sector.

66. Production financing was also suggested as a very important instrument for value addition and primary production. Macro-economic issues, like exchange rate, are equally important for export diversification and should be addressed.

67. In developing this concept of export-led strategy further, Small and Medium Enterprises should be given a very important role in export value addition. In this regard, it was pointed out that ATI had a critical role to play in facilitating access to credit for SMEs. ATI should, therefore, also be involved in developing the project proposal.

Decision

68. The Ministers decided that the COMESA Secretariat should further develop this concept of export-led strategy into a detailed project proposal and submit it to the Committee at its next meeting.

Draft Investment Framework Agreement on the COMESA Common Investment Area

  

69. The Ministers noted highlights of the Draft Investment Framework Agreement on the COMESA Common Investment Area (CCIA). The objectives of the CCIA, have been set as follows:

(i) increasing investors’ confidence in the region by gradually liberalising the investment environment (deregulating the investment process and opening more industries to foreign investors);

ii) promoting COMESA as a destination of foreign direct investment; and

iii) protecting investments from nationalisation and/or expropriation.

70. It was noted that the Agreement defines a COMESA investor as either a national or juridical person (legal entity registered in a Member State) of a Member State who invests in another Member State. This definition tries to encourage intra-COMESA investment. Once an investor qualifies as a COMESA investor, he is entitled to benefit under the Agreement. The Agreement also lists the investments that are eligible to benefit and get protection under the Agreement. The Agreement covers investments made in Member States prior to or after the entry into force of the Agreement but does not cover claims arising out of disputes related to investments made prior to the entry into force of the Agreement.

71. The Agreement also provides for member States to open up their industries to all COMESA investors by 2010 and to non-COMESA investors by 2020. A Member State will be able to restrict national treatment through exceptions listed under the Sensitive List (listing industries and measures that will not be open to foreign investors) and the Temporary Exclusion List (listing industries that will not be open to foreign investment for a certain period of time). COMESA investors will also receive most favoured nation treatment and fair and equitable treatment. Member States will also be able to protect themselves against the effects of the CCIA through general exceptions, Emergency Safeguard Measures and Measures to Safeguard Balance of Payments.

72. It was noted that the Agreement also provides for State-State and investor-State dispute resolution. Disputes between Member States over the interpretation and application of the Agreement may be settled by negotiations, and if this is not successful, they have recourse to the COMESA Court of Justice. Investors have access to international arbitration, including that under ICSID & UNCITRAL, as well as recourse to domestic courts of host country and the COMESA Court of Justice, if negotiations with a Member State are not fruitful.

73. It was further noted that institutions will be set up to implement and review the CCIA.

74. During the course of the discussions, some delegates wondered what relevance the CCIA had to a meeting of financial experts.  It was explained that finance experts from Member States need to know about the CCIA and its implications on revenue collections of Member States and their balance of payments.  The CCIA aims at freeing up the movement of capital and labour, for example by deregulating the Capital Account.  If COMESA member States are to harmonise investment policies, laws and procedures, for example on incentives, this will have a bearing on the sort of incentives they give to investors and thus on their revenue collections.  The Draft Investment Agreement guarantees an investor that he will have the right to transfer dividends and other incomes out of a Member State freely.  This will have an impact on the amount of foreign exchange available to meet balance of payment obligations.  

 

75. The Ministers were informed that Technical Working Groups on the CCIA have been set up in most of the Member States.  The Groups will hold further consultations on the CCIA and run awareness campaigns to sensitise stakeholders on the CCIA.  National consultants are being hired in the member States to carry out a study on country commitments under all its bilateral, regional and multilateral investment agreements to ensure that there is coherence with the CCIA.  The reports prepared by the consultants will be used by Member States to formulate their negotiating positions for the forthcoming negotiations on the CCIA, which are scheduled to start in February 2005.

Decision

76. The Ministers urged member States that have not set up CCIA Technical Working Groups to oversee the CCIA programme to do so. These Technical Working Groups will then formulate the Member States’ negotiating position for the negotiations of the CCIA, which will start in February 2005.

Study on Poverty Reduction Strategies in Eastern and Southern Africa

77. Under this agenda item, the Ministers noted the draft study report of a consultant from UN ECA – EA SRO on Poverty Reduction Policies in Eastern and Southern Africa”. It was noted that most countries in Eastern and Southern Africa sub-region are implementing poverty reduction and growth strategies that focus on macro-economic stability and the pursuit of pro-poor policies involving increased public spending on basic education and health. However, it is recognized that the mere pursuit of macro-economic stability with increased public spending on social services will not enable countries to achieve their goal of poverty reduction.

78. The Ministers noted that at the Thirteenth Ministerial meeting held in Ethiopia in May 2002, it was recommended that Member States adopt growth–oriented economic policies that would result in an effective and meaningful impact on the poverty levels prevailing in the region. The COMESA Secretariat was, therefore, requested to undertake a study that would recommend a future course of action in this regard.

79. It was noted that in April 2003, COMESA Secretariat had submitted to the United Nations Economic Commission for Africa, Eastern Africa Sub-Regional Office, a request for assistance in the preparation of a paper on a comparative analysis of the various poverty reduction strategy papers (PRSPs) in the COMESA region, focusing on their preparation, strategies, implementation and outcomes in achieving the objectives of the Millennium Development Goals. UNECA agreed to sponsor two consultants to undertake a study in this regard.

80. The Ministers were informed that the process of the PRSPs was similar in the twelve countries examined. The officials met proclaimed that the PRSPs had undergone a comprehensive consultative process both during formulation and also in monitoring but this assertion was contested by some national stakeholders; they had similar priority areas of action; they were obliged to undertake annual reviews and the PRSPs had to be updated every three years. However, it was reported that none of the PRSPs had targets set at attaining the Millennium Development Goals.

81. It was reported that the countries that were analysed were experiencing problems of fulfilling the targets set in the PRSPs due to paucity of resources. Indications were that, without urgent exceptional intervention in the provision of resources, countries would be unable to meet the Millennium Development Goals. Macroeconomic developments were generally not encouraging: growth rates were low (below the recommended 7 - 8 per cent within the MDG framework); savings and investment rates were also low; the budget deficits and international reserves were fragile while more remains to be done in keeping inflation under control; current account deficits were high; debt payment posed serious challenges; and that countries which were regarded as success stories were facing some unique problems.

82. The Ministers were informed of proposed actions to address the constraints being faced by the countries. In the continuation of reforms, countries were urged to: restructure their economies; exert efforts in mobilising resources internally as donor funds do not seem to be forthcoming despite commitments made at various international fora; diversify and add value to exports; continue to plead for debt forgiveness; be vigilant in governance; exploit opportunities within the regional integration framework; ensure enabling environment for the private sector; improve credit access; enhance tax reform efforts; develop own capacity for formulating relevant development policies; and focus on productive sectors.

83. The Ministers were also informed of the need for sharing experience through regular expert group meetings and also through utilization of the information technology by one of the institutions, namely, ECA or COMESA, hosting a link fully dedicated to the PRSP process.

84. In the ensuing discussion, the Ministers noted a number of suggestions made by Experts that included: the great need for full participation of all stakeholders in the PRSP process; the political will to fight poverty, which is fundamental to the success of poverty reduction; resource requirements for full implementation of PRSP targets and pursuit of MDGs called for urgent exceptional intervention; expectations for external support at the required levels were bleak and efforts should be made to mobilse resources from within; concern over the fragility of national economies, even for those regarded as role models; and improved credit access through microfinance institutions and local development banks, should be established where they did not exist.

85. The Ministers also observed that: the role of agriculture is of fundamental importance in rural poverty reduction; governance should continue to be ensured; countries should continue to lobby for market access to developed countries markets and also for removal of subsidies; incorporate information on other initiatives relating to promotion of growth, namely, NEPAD and AGOA; and mainstream trade and regional integration in national development plans and policies.

86. The Ministers noted that a final paper incorporating the views expressed and the suggestions made at the meeting would be submitted to the Secretariat. The Secretariat would then convene a seminar on poverty reduction in accordance with the decision of the Sixth Meeting of Ministers of Finance held in Nairobi, Kenya in November 2003.

REPORTS BY COMESA FINANCIAL INSTITUTIONS

Report of the Executive Secretary of the Clearing House on the Activities of the Clearing House

87. The Ministers noted the Clearing House activities with regard to the (i) Regional Payment and Settlement System (REPSS); and (ii) African Commerce Exchange- ACE (trading as Fin-X) which were carried out in accordance with the decisions of the Committee of Central Bank Governors held in Nairobi in November 2003.

Regional Payment And Settlement System (REPSS)

88. The Ministers noted that the Regional Payment and Settlement System (REPSS) represented the final rung in the process of transformation and modernisation of the COMESA Clearing House. Details of work carried out during the year on the REPSS project are contained in the “Report of the Sixth Meeting of International Payment Experts from Central Banks on the Establishment of a Regional Payment and Settlement System (REPSS)”.

89. As was indicated at earlier meetings, under Phase I of this project the Project Plan, incorporating the Business Requirements and the Business Case for REPSS had been prepared, after consultations and discussions with Central Banks, international, regional and local banks and the business communities in 14 COMESA and SADC countries.

90. The Ministers noted that Governors had approved the (i) User requirements for REPSS as contained in the Report entitled “User Requirements for the Regional Payment and Settlement System (REPSS – May 2003); (ii) Establishment of pilot phases on the Fin-X/ACE SWIFT Bureau infrastructure for access by all participating Central Banks for evaluation; and (iii) Action Plan for the next phase of implementation of REPSS.

91. Work in the following phases had been undertaken during the year: (i) Preparation of a Draft Request for Proposal (RFP) document for tender of software and hardware; (ii) Initiation of a comparative study on the existing legal environment for payments and settlement systems at national levels; and (iii) Completion of the design of an appropriate Letter of Credit, in line with international practice, that would be used under REPSS.

92. The next phase of implementation of REPSS is spelt out in the Report of the Sixth Meeting of International Payments Experts from Central Banks. Once the funding is in place, REPSS will move to the operational stage, expected to happen during 2005.

African Commerce Exchange – Fin-X

93. With regards to the African Commerce Exchange (ACE), which has undergone a name change to COMESA Financial Exchange (Pty) Ltd and trades under the acronym FIN-X, it will be recalled that it was launched during the Summit of Heads of States, in May 2000 in Mauritius, with the aim of providing cost effective SWIFT connectivity via a SWIFT Service Bureau to small and medium sized banks on a shared cost basis.

94. FIN-X today provides SWIFT connectivity to 52 Financial Institutions in 19 countries in Africa (Algeria, Botswana, D R Congo, Cote D’Ivoire, Guinea, Kenya, Liberia, Malawi, Mauritius, Mozambique, Nigeria, Rwanda, Senegal, Swaziland, South Africa, Tanzania, Uganda, Zambia and Zimbabwe), and also Yemen.

95. Besides SWIFT connectivity, FIN-X continues to seek additional benchmark products to add to their portfolio of services to banks. In this connection FIN-X is actively marketing the leading Anti-Money Laundering Software OFAC (Office of Foreign Assets Control) to both client banks and new subscribers. FIN-X is currently undergoing an upgrade of systems to ensure that client banks receive real time notifications of any message (either inward or outward) that may be filtered in the OFAC software.

96. FIN-X continues to work closely with the COMESA Clearing House on the Regional Payment & Settlement System (REPSS), particularly with regards to the establishment of pilot phases of REPSS on the FIN-X SWIFT Bureau infrastructure for access by all participating Central Banks for evaluation.

97. The COMESA Clearing House continues to play its facilitation role to FIN-X in the introduction of its services in those member States that still require SWIFT connections. The Clearing House also works closely with FIN-X in ensuring that all member Central Banks and commercial banks that will be on REPSS are connected to the SWIFT Network.

Decisions

98. The Ministers noted the Governors’ decisions that:

i) Work on REPSS should proceed in accordance with recommendations contained under “ Progress Report on the Establishment of a Regional Payment and Settlement System (REPSS);

ii) The Clearing House continues its assistance to ACE in its efforts to introduce its services in other member States; and

iii) Ongoing collaboration between the Clearing House and ACE in setting up the “Regional Payment and settlement System - REPSS” should be further strengthened.

Activities of PTA Reinsurance Company

99. The Ministers noted r the progress report of ZEP-RE and observed that ZEP-RE as of 30th August, had written a premium income of US$ 15, 104,427.82. Claims incurred as at 30th August 2004 amounted to US$ 5,799,362.90.

100. The Ministers also noted that the market within which the company was doing business outside the region included Algeria, Benin, Cameroon, Gambia, Ghana, Iran, Ivory Coast, Jordan, Libya, Oman, Mauritania, Mozambique, Namibia, Nigeria, Saudi Arabia, Senegal, Sierra Leone, Sri Lanka, Togo and Tunisia.

101. The Ministers were informed that ZEP-RE undertook a credit rating exercise with the firm of Global Credit Rating (South Africa) and scored an “AA” rating. It was hoped that this rating would enable the company to compete effectively and serve the region better.

102. The Ministers were also informed that the 13th Annual General assembly adopted a new logo and name for the company changing from the previously known ‘PTA Reinsurance Company (ZEP-RE) to the new name‘ ZEP-RE (PTA Reinsurance Company). The changes are meant to reflect the new brand identity ZEP-RE is adopting of a regional organisation with an international presence.

103. The Ministers noted that Uganda was admitted as a new shareholder and allocated 1900 shares. The Governments of Djibouti and Kenya and SONARWA of Rwanda were also allocated additional shares.

104. The Ministers were informed that some COMESA member countries were neither a signatory to the Agreement establishing the Company nor a shareholder in the Company. The company was, however, carrying out business with insurance companies in these countries.

Decision

105. Member States who are either partial participants or non-participants in its activities should consider fully embracing ZEP-RE’s operations in line with the various decisions of the Council of Ministers and Heads of State and Government in order that the Company may fulfil its objectives.

African Trade Insurance Agency (ATI)

106. The Ministers noted that ATI’s core business is to support productive activities in its member countries through the provision of political risk (government buyer non payment; project loan political risk and FDI political risk cover) and credit insurance for trade and investment transactions. He stated that ATI undertakes this in conjunction with the Lloyd’s of London insurance market and many other international private and public insurers.

107. It was noted that ATI has made significant progress in the last three years in providing insurance cover for a number of transaction, and has met some of the performance targets originally agreed upon between the Agency and the World Bank prior to the commencement of commercial operations. The value of contracts so far supported by insurance policies issued by ATI stands at US$ 122.3 million, which is higher than the agreed target of US$ 80 million within three years of ATI’s operations. It is estimated that by the end of the year, the value of contracts supported may rise to just under US$200 million. During the current calendar year, ATI has issued 6 additional insurance policies bringing the total number of policies issued to 11 since the commencement of commercial operations.. These transactions have earned the agency a total of US$1.2 million in premium income. The agency is now focusing its efforts towards achieving self-financing of its operations, a target which it is expected will be achieved by the end of 2005. ATI has written business in all but two of its member countries (Rwanda, and Malawi).

108. It was also noted that the confidence of the private market in ATI’s security has continued to grow as most transactions written are coinsurances with various syndicates and companies in the private market.

109. The Ministers were further informed that ATI will continue to adapt to the changing insurance market for trade and investment related risks, by reviewing its product portifolios and bringing them in conformity with market trends.

110. It was also noted that ATI is in the process of appointing a number of agents and brokers in its member countries to strengthen its distribution network and to market ATI’s products on a commission basis. It was pointed out that the Liaison Offices which were appointed by member governments in the member countries to help ATI have not been productive, hence the decision of the Agency to employ the services of agents and brokers.

111. It was reported that the agency has continued to expand its membership with additional countries joining during the current year. Madagascar and Eritrea joined in 2003. In 2004, Djibouti and D. R. Congo signed the Treaty establishing the agency, becoming its 10 and 11th member respectively.

112. It was also reported that the agency has finalised and submitted to the World Bank a three year Business Strategy which outlines the actions the Agency intends to pursue towards the realisation of its mission and business targets. This strategy has been approved by ATI’s Board of Directors and is the basis on which the World Bank is considering the approval of a supplemental credit for ATI.

113. The Ministers noted that ATI is undertaking among others, the following additional activities:

(i) Discussions with central banks of member countries to consider the possibility of opening up their credit information to ATI for purposes of risk assessment;

(ii) awareness creation missions in member countries and other markets on the benefits of ATI products;

(iii) maintaining a competitive pricing structure; and

(iv) partnership arrangements with different organisations such as Berne Union and Prague Club.

Decisions

114. The Ministers decided that:

(i) The member States, through the Liaison Offices and by direct contact, continue to support the activities of ATI in their countries by referring business enquiries to it, especially where transactions involving parastatals; and

(ii) COMESA member States which have not joined the Agency should consider doing so, in order to bring the benefits of ATI’s products to the business communities in their respective countries.

PTA Bank

115. The Ministers noted that the PTA Bank did not present a report as it had already submitted it to its Board of Governors which comprises Ministers of Finance.

IMF/World Bank Financial Sector Assessment Programme (FSAP)

116. The Ministers noted the presentation made by Mr Robert Corker, Assistant Director for Monetary and Financial Systems Department of the IMFon the Financial Sector Assessment Programme (FSAP), highlighting the objectives, design features, outputs, confidentiality, participation, timetable of FSAPs and FSAPs in Africa.

117. The Ministers noted FSAP’s analytical elements, pillars of financial system stability, International standards and codes assessed, the interpretation of results and the FSAP experiences in the COMESA region. It was noted that Egypt (2002), Kenya (2004), Mauritius (2003), Uganda (2001), and Zambia (2002) had completed FSAPs. Sudan is currently undertaking an FSAP, Uganda is undertaking a follow up of FSAP, and Rwanda and Madagascar have volunteered for an FSAP in 2005.

118. The Ministers noted the experiences in the implementation of FSAP in their respective countries. They agreed that the exercise helps in identifying weaknesses in the financial sector and the necessary to take corrective actions to address the weaknesses. It was pointed out that the weaknesses include, among others, the problem of access to financial services, lack of competition, high interest rates spreads, interest rates not sensitive to policy signals, lack of credit information bureaux, and insufficient lending to SMES and agriculture, which are the backbones of the economy.

119. It was pointed out that one of the weaknesses of the FSAP is the tendency for recommending over regulation and devotion of a lot of resources to ensure compliance with international standards. However, Mr. Corker explained that to counter this, FSAPs were selective in their assessments of international standards.

120. The Ministers agreed that the FSAP does not resolve all problems but enables the authorities to identify the major weaknesses and to help plan a comprehensive approach to undertake financial sector reform. In this regard, it was pointed out that consultations among the Central Bank Governors will foster solutions which reflect the objective realities of the region.

Any Other Business (Agenda item 5)

121. The Minister of Sudan proposed that COMESA should set up a Strategic Fund for development, which would finance productive and income generating activities particularly agriculture; social services such as education, health and water for animals; transport and communication including airlines.

122. He also suggested that there should be an operational or implementation fund for rural development in order to ensure balanced development between rural and urban areas. He stressed the need to address the problem of poverty and the need to ensure that development projects are targeted at the poor.

123. He further stressed on the need to strengthen the private sector participation in the COMESA integration arrangement.

124. The meeting appreciated the proposal by the Hon. Minister of Sudan and requested the Government of Sudan to prepare a detailed proposal for consideration of the Ministers at their next meeting.

Adoption of the Report and Closure of the Meeting (Agenda item 6)

125. The Ministers considered the report of their meeting and adopted it with amendments.

126. Honourable D. Chapfika, Deputy Minister of Finance from Zimbabwe, moved a vote of thanks, on behalf of all delegates, to the Vice President, the Government of the Republic of Zambia as well as the Ministry of Finance and National Planning of Zambia for the warm hospitality that had been extended to all delegates. He also thanked the out-going Chairman for a job well done during his term of office. He further thanked the Chairman for the efficient manner with which he had steered the deliberations of the meeting. He expressed thanks to the COMESA Secretariat and to all those who had been involved in servicing the meeting.

127. The Honourable Deputy Minister emphasised the need to honour commitments that were undertaken during the meeting. He pointed out that Ministers of Finance had the responsibility for spearheading development in their respective countries. In this regard, he mentioned the importance of sharing information among COMESA member countries on development issues. He urged the member States to learn from the experience of the successful Asian countries like Singapore and Thailand which thirty years ago were poorer than the COMESA countries but were now enjoying economic prosperity and high living standards. He also emphasised the need to set priorities in order to achieve the required development and to contribute to the ideals of COMESA.

128. In closing the meeting, the Vice Chairman thanked the Ministers and all delegates for their active participation and useful contributions which had led to the successful conclusion of the meeting. He also thanked the Government of Zambia for the warm hospitality extended to all delegates. He emphasised the need for the COMESA region to harness its great potential of natural resources as well as policy co-ordination. In this context, he urged the member countries to work closely together in order to build a strong base for Africa’s development. Finally, he wished all the delegates a safe return journey to their respective countries.

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