1. The beginning of SADC

The Southern African Development Community (SADC) was founded in 1980 when nine 1)) countries in Southern Africa decided jointly "to pursue policies aimed at economic liberation and integrated development of our national economies". After Namibia became independent in 1990, it also joined SADC, to become the tenth member. South Africa joined in 1994 and was shortly afterwards followed by Mauritius. The Democratic Republic of the Congo has recently acceded to SADC.

The total population of the thirteen SADC member states at this stage is approximately 184 million, and once Seychelles, which last year applied for membership, joins the organisation, the total population of the region will be raised to 185 million or 26 per cent of the total population of the African continent.

The present Treaty of SADC was approved at a Summit Meeting of the Heads of State of the participating countries in August 1992. As in the original Treaty, the importance of economic development and co-operation in the region was emphasised. Included in the main objectives of the Community are the following economic goals:

to achieve development and economic growth, alleviate poverty, enhance the standard and quality of life of the peoples of Southern Africa, and support the socially disadvantaged through regional integration;

to promote and maximise productive employment and utilisation of resources of the region; and

to achieve sustainable utilisation of natural resources and effective protection of the environment.

The Treaty established a framework for co-operation among the member states of SADC and provides for:

deeper economic co-operation and integration on the basis of balance, equity and mutual benefit, providing for cross-border investment and trade and freer movement of factors of production, goods and services across national borders;

common economic, political and social values and systems, enhancing enterprise and competitiveness, democracy and good governance, respect for the rule of law and guarantee of human rights, popular participation and alleviation of poverty; and

stronger regional solidarity, peace and security, so that the people of the region can live and work together in peace and harmony.

The Treaty provides for various political, social and cultural objectives which are not of direct relevance for the enhancing of financial co-operation in the region. These will not be discussed further in this presentation.

2. Institutional framework

The Heads of State of the SADC countries form the main policy decision-making body of this organisation. They meet from time to time in Summit Meetings to give direction to the policy and activities of the organisation. There is also a Council of Ministers, mainly Ministers of Foreign Affairs, that meets regularly (once a year) to overview progress made with the various programmes for the achievement of the objectives of SADC.

At the third tier, Sectoral Councils of Ministers have been formed to drive the process of different Protocols, aimed at the more specialised activities. Each country within SADC has been given responsibility for one or more of the Protocols. South Africa, for example, has been given responsibility for managing and developing the Finance and Investment Protocol 2). For this purpose, there is a Council of Ministers of Finance that meets from time to time to give guidance to a programme for closer financial co-operation amongst the pa

rticipating countries in SADC. The Council of Ministers of Finance formed two sub-committees, one for senior Treasury Officials, and the other for Governors of Central Banks. The two sub-committees are chaired by the South African Director-General of Finance in the case of the Committee of Treasury Officials, and the Governor of the South African Reserve Bank in the case of the Committee of Governors.

The Secretariat of SADC in Gaborone, Botswana, is responsible for the overall co-ordination of all the

the activities of the member states. In each country, there are sector co-ordinators who must liaise with the Secretariat in Gaborone, and also Sectoral Secretariats to serve the various Councils of Ministers.

This elaborate institutional framework for SADC co-operation may seem to be rather unwieldy. The organisation, however, tolerates relatively independent action within the various protocols and sectoral and sub-sectoral committees. The Committee of Governors of Central Banks, for example, established its own small Secretariat in the South African Reserve Bank and was given a relatively independent mandate to pursue the objective of closer co-operation between the central banks, the commercial banks and the financial markets in the region. The Committee of Governors reports regularly to the Council of Ministers of Finance and works very closely with the Committee of Senior Treasury Officials.

As a first task, the Committee of Governors defined its Terms of Reference which were then approved by the Ministers of Finance and by the Council of Ministers. The main elements of the Terms of Reference of the Governors Committee can be summarised as follows:

establish closer co-operation among the member central banks through regular discussions of the philosophies, structures, functions, objectives and strategies of central banking;

analyse the differences in the internal structures, procedures and practices, and relationships with governments, of member central banks, and explore ways of achieving comparability and compatibility in these areas;

develop a statistical data base on member states;

exchange views on the objectives and instruments of monetary policy with a view to improve co-ordination, co-operation and harmonisation in the future;

examine the role of central banks in the establishment, regulation and supervision of banking institutions in the region with the view to promoting harmonisation and co-operation;

define the role central banks should play in the development and operation of money and capital markets;

explore the involvement of central banks in international financial relations, such as the management of foreign reserves, exchange rate regimes and exchange controls, with a view to closer co-operation in the region;

investigate and improve the repatriation of bank notes and coin within the SADC region;

co-ordinate the development of national clearing, payment and settlement arrangements, with a view to facilitate financial transactions among SADC members;

promote training and public education in the fields of central banking and financial policies and systems; and

co-ordinate ways and means to combat money laundering and other cross-border banking currency frauds.

3. The work and functions of the Governors Committee

From the outset, the Governors Committee guarded against over-ambitious projects that would only lead to frustration. A Euro-type of financial integration amongst the countries of Southern Africa would, at this stage, be unrealistic and impracticable. The stage of development of particularly the financial sectors in each of the participating countries is vastly different.

An approach, more appropriate to the present realities of the region had to be designed. In drafting its own mission and terms of reference, the Committee designed a model for financial co-operation that was described as a "bottom-up" approach (as opposed to a "top-down" strategy). The adopted approach is based on building financial co-operation by first laying an appropriate foundation in the form of an effective institutional framework for the financial system in each country. More grandiose schemes for the harmonisation or integration of macroeconomic monetary policies can be considered at a later stage, i.e. once central banks, private banking institutions and financial markets have been established and are functioning effectively in most of the participating countries.

A second challenge that had to be faced was the diverse roles and functions assigned by their Governments to the various central banks in the region. In finding an answer to the question of what contribution central banks can make towards the achievement of the goals of SADC, a consensus must first be found on what the task of the central banks should be in promoting optimum economic development and growth. There may not yet be full agreement on this daunting question, but the majority view favours the contemporary approach of the more advanced economies that the central bank's responsibilities should be restricted to the creation and maintenance of a stable financial environment that will be conducive for sustainable economic growth. Central banks must protect the value of the currency. This is gospel, not only in more industrialised, but also in developing and emerging economies. Overall financial stability may not be a guarantee for, but certainly is a precondition for, sustainable economic growth.

4. Implementation of the Governors programme for financial co-operation

Over the past two and a half years, the Committee of Governors made good progress in implementing some of its initial programmes for enhanced financial co-operation in the region. The Committee itself met five times and, through a number of technical sub-committees of central bank officials, achieved the following results:

At the out-set, the Governors regarded it as essential to develop a better understanding of the regional economic environment in which we operate. For this purpose, the Secretariat of the Governors Committee, with the assistance of the statistical and economic departments in SADC central banks, developed a comprehensive macroeconomic statistical data base for all the participating countries. This information has been issued in book form, is regularly updated, and has recently been published on the Internet on a special Webpage for SADC. It is therefore accessible to all the members of SADC.

To enable Governors to learn from the experiences of each other, a data bank with information on issues such as legislation, relationships with governments, functions and responsibilities, management, policy objectives, procedures and instruments of monetary policy, and internal administrative structures for each central bank, has been compiled in an information data base and is now available to all the Governors. The information was recently published in a comprehensive document called SADC Financial Systems: Structures, Policies and Markets, and has been made available to institutions such as the Bank for International Settlements and the International Monetary Fund. It has also been published on Inter-net. This document provides a wealth of information and a useful basis for the further development of co-ordination of monetary policies within the SADC region.

The central banks are involved in a major study on the development of national payment, clearing and settlement systems in SADC countries. The aim with this programme is to develop internal payment systems that will enable countries to cater for the demands of modern and integrated financial markets. Payment, clearing and settlement systems are being developed on a national level, but on a compatible basis, so that they can eventually be integrated relatively easily. South Africa itself introduced a new electronic national payment, clearing and settlement system on 1998-03-09, providing for real-time on-line settlement on a gross basis of large transactions, and a full daily settlement of the net outstanding positions amongst all banking institutions. This system, which will also be linked to international systems such as SWIFT, paves the way for a co-ordinated regional approach for final settlement of cross-border payments.

Each one of the central banks in the region runs its own information and technology system. To ensure compatibility and facilitate the sharing of data, information technology staff have held meetings to identify the gaps in existing systems, develop a plan of action and co-ordination, training and learning from each other. This co-operation has already led to the implementation of the Website for SADC central banks (3) and the establishment of an E-mail communication system amongst the participating banks.

There is a need for the standardisation of bank regulation and supervision in the region, and for the development of the quality of and capacity for, proper monitoring and control systems. Even before the formation of the Governors Committee in 1995, the bank regulators of the region united themselves in an East and Southern Africa Banking Supervisors Group (ESAF). Harmonisation is encouraged on policies such as bank licensing, minimum prudential requirements, regular auditing of banking institutions, and internal risk management. ESAF is providing specialised courses for the development of the financial regulatory capacity in the region, and is generously supported in this programme by multinational institutions such as the Bank for International Settlements, the International Monetary Fund, and the World Bank. A joint effort is also being made to take the necessary action against illegal banking activities such as money laundering and pyramid schemes.

There is a great need for training and the development of skills in central banking in the region. The South African Reserve Bank has introduced a specialised Training Institute for Central Banking, and provides specialised courses in central banking and financial management for its own staff and officials of other central banks in the region.

The removal of remaining exchange controls in SADC countries is another important priority of the Governors Committee. Arrangements have been introduced for the unrestricted repatriation of notes and coin of other countries used in any participating country back to the country of issue. Movement towards a situation where there will be no exchange controls on the flow of capital in the region is being promoted. Two members, namely Zambia and Mauritius, have already removed all exchange controls in their countries, and South Africa is lifting its remaining exchange controls in respect of SADC countries faster than for the rest of the world. A special study was recently completed by a sub-committee of the Governors Committee on all the remaining exchange controls by each of the members. This study now serves as a guide for the further removal of restrictions.

During the course of 1997, the Governors Committee extended its activities to the level of private (commercial) banking operations in the region. These "private" bankers have been requested to form a Subcommittee of Commercial Banks, to meet from time to time and to advise the Governors Committee on constraints and inhibitions that may exist on the gradual integration of private banking activities in the region. The Banking Council of South Africa has taken the initiative in this regard and a first meeting of the bankers of the region took place in Johannesburg during March 1998.

A Subcommittee of Stock Exchanges in SADC countries was also formed, and this Subcommittee has already made important inputs to the Governors Committee on important issues such as the standardisation and harmonisation of listing requirements on the various stock exchanges operating in the region, dual listings, central depositories, and clearing and settlement arrangements. Co-operation in this area should and will facilitate cross-border investments in the region.

5. Challenges ahead

The Committee of Governors of the central banks of SADC is only at the beginning of a challenging task. At their summit in Maseru, Lesotho, in 1996, the Heads of State of the SADC countries decided to work towards the establishment of a Community by the year 2004. The central banks therefore do not have unlimited time to prepare the way for the next phase of financial co-operation in the region, which has to be elevated from the development of the infra-structure, to monetary policy co-operation.

1) Angola, Botswana, Lesotho, Malawi, Mozambique, Swaziland, Tanzania, Zambia and Zimbabwe.

2) There are a number of other Protocols, co-ordinated by other countries, for example: Inland Fisheries (Malawi), Marine Fisheries and Resources (Namibia), Livestock Pro-duction and Animal Disease Control (Botswana), Environment and Land Management (Lesotho), Energy (Angola), Mining, Labour and Employment (Zambia), Tourism (Mauritius), Industry and Trade (Tanzania), Food, Agriculture and Natural Resources (Zimbabwe), Human Resource Development (Swaziland), and Culture and Information as well as Transport and Communication (Mozambique).

3) The SADC Website can be accessed at www.sadcbankers.org.;