Growing together: The ECOWAS countries are looking to deepen the level of integration

 

The Economic Community of West African States (ECOWAS) represents a grand ambition. Dedicated to establishing a single currency and Customs union, with fully integrated economies and open borders, the path ahead for ECOWAS is a challenging one, involving sensitive decisions on issues of economic sovereignty and a significant amount of political will.

The tribulations of the EU bear witness to the complexity of establishing a truly common market, and the idiosyncrasies of West Africa make the task no less difficult. It is a region in which it is easier to import goods from Europe than to trade with neighbours, and where ageing infrastructure and redundant procedures limit efficiency.

However, the combined economic potential of the 15 member states of ECOWAS is enormous, with a huge pool of labour, substantial deposits of natural resources and a sizeable amount of arable land. Progress towards complete integration has thus far been stuttering, but if the bloc is able to build on its most notable achievements in a tangible way, the returns would be impressive.

TRADE & CUSTOMS: Among the mandates of ECOWAS, some of the most important are harmonisation of trade and Customs policies and the removal of restrictions on freedom of movement for goods, people and services within the bloc. The diversity in the nature and the scale of ECOWAS member states’ economies emphasises the gains that can be achieved through increased intra-regional trade and mobility, and the enhanced bargaining power the community can exert in international negotiations.

The path towards a more open common market in West Africa has been bumpy, and ECOWAS has been eager to reduce the hurdles. While the administration of common market issues falls under the auspices of the ECOWAS Commissioner for Trade, Customs and Free Movement, policy decisions come from the Authority of Heads of State and Government. Trade integration issues often dominate the agendas of summits. The community has set bold targets for improving integration and establishing an open regional marketplace, with the aim of a Customs union by 2012 and an ECOWAS common market by 2014. These will precede moves targeting full monetary union between all 15 members by 2020.

The first step towards monetary union and a common market involves the synchronisation of trade regulations, and in Cotonou, Benin in 1993, the amended ECOWAS treaty laid out steps for harmonising external Customs duties for all goods, and mandated equal treatment for imported goods from member states with domestic goods, although subsequent implementation has been patchy.

In November 2008 ECOWAS adopted the outline of a common external tariff structure, paving the way for further discussion of the EPA and other external trade agreements, as well as helping harmonise existing tax rates among member states.

Extensive progress has been made on freedom of movement, a crucial part of ensuring a sustainable regional market, with visa requirements or entry permits for community citizens eliminated within the bloc. Nine countries have adopted the ECOWAS passport, which was created in 2000, leading to a high level of intra-regional mobility, with 3% of West Africans living in a country where they do not have nationality, according to the OECD. Within the EU the figure has remained at around 0.5%.

ROLE MODEL: ECOWAS is often held up as an example for regional bodies around the continent, given its high level of coordination and integration, particularly in the economic sphere.

However, a number of issues are still to be addressed if the region is to establish full Customs and monetary union. The West African Economic and Monetary Union (Union Economique et Moné- taire Ouest Africainé, UEMOA) – the body of eight francophone ECOWAS member states – is an example of an operative free trade area and Customs union in Africa, with a common market since 2000, yet movement of goods is limited.

Trade levels between ECOWAS member states are relatively low, averaging approximately 9% of total regional trade in 2001-06. This is partly the result of a lack of complementarity, particularly between UEMOA and non-UEMOA members. While non-UEMOA members of ECOWAS account for some 75% of the region’s GDP, there is significant scope for increasing trade between the blocs. According to a 2008 IMF working paper, “The trade complementarity index for UEMOA countries as exporters and the other ECOWAS countries is 29%, higher than the index level of 25% that is thought to indicate strong potential for enhancing trade.”

CHALLENGES: The deep level of UEMOA’s integration – including a common bourse and banking regulator – offers hope that it can serve as a nucleus for greater integration within the ECOWAS framework. However, the limited number of processing facilities, the lack of a market for semi-finished products, and underdeveloped transport and logistics facilities have limited cross-border activity.

Transport and logistics are a big part of the problem, as poor infrastructure and confusing clearance procedures extend the time required to transfer a container from one member to another. In 2009 the average cost to import a container across a border within ECOWAS was $1876, while the cost to export was $1519. The same rate for OECD countries was $1146 and $1090, respectively. The average time for trading a container across a border in the region was 32.1 days to import and 27.9 days to export, compared to 11 days and 10.5 days for OECD states. The lost time has a tangible impact on broader performance. The International Finance Corporation found that for each day of delay along an export corridor, a country sees a 1% reduction in its export volumes.

Non-tariff barriers – including multiple or undeclared border fees, redundant Customs procedures, insurance and capital requirements, and formal and informal checkpoints – are also a hindrance. ECOWAS is taking measures to tackle these challenges, and has embarked on a range of projects to boost intra-regional movement of goods, services and people.

ROAD INFRASTRUCTURE: At least $350m is being allocated through the UK’s Support to West African Regional Integration Programme to upgrade infrastructure along four of the region’s primary transport corridors: the Abidjan-Ouagadougou-Niamey road/rail intermodal corridor; the Dakar-Bamako-Ouagadougou rail/road intermodal corridor (from Senegal to Burkina Faso); the Lomé-Ouagadougou-Niamey road transport corridor (from Togo to Niger); and the Cotonou-Niamey-Ouagadougou road transport corridor (from Benin to Burkina Faso). Similarly, the Ougadougou Declaration – signed in 2007 by Benin, Burkina Faso, Côte d’Ivoire, Ghana, Mali and Niger – seeks to prompt greater action at the national level, with signatories pledging to tackle corruption and harmonise road transport regulations.

A report by the US Agency for International Development concludes that the number of checkpoints and delays on transport corridors within UEMOA decreased by 15% in late 2010 over the previous quarter, while delays dropped by 8%. Requests for bribes have also slowed their rate of increase, although in some countries, such as Côte d’Ivoire, they still constitute an average of $14 per 100 km.

COMMON CURRENCY: At the heart of the ECOWAS project is the long-term goal of creating a single currency for all the member countries. A Euro-style monetary integration is a complex and controversial process that will take several years to achieve – the challenges of tying economies of varying scales and development to a shared currency are still very much evident in the EU – but the advantages of doing so appear clear for ECOWAS leadership. One of the primary motivating factors behind the establishment of ECOWAS was the desire to strengthen cross-border economic links and absorb multiple currencies into one to make regional and external trading easier, cheaper and less risky.

UEMOA has been using a version of the African Financial Community franc (Communauté Financière Africaine franc, CFA franc) since 1945. There is more trade within that group than in the larger ECOWAS bloc, a fact which reinforces the argument that a single currency would boost trade in the region.

Although the monetary union is a huge undertaking, the region already benefits from a significant degree of expertise, given that eight ECOWAS countries currently share a regional currency.

THE ECO: ECOWAS’s plan to introduce a single currency is a phased one, mandating the creation of a second regional currency in 2015, which will later be merged with the CFA franc to create the single regional currency. The eco, as the second currency would be called, is intended for use in Nigeria, Sierra Leone, the Gambia, Guinea and Ghana. That would leave only Liberia, where both Liberian and US dollars are in circulation, and Cape Verde, which uses the escudo, with national currencies.

The plans to implement the new unit call for these nations to choose, in 2015, a regional currency to use in advance of the final convergence. Creating a second regional currency in advance is expected to help the achievement of the final goal by moving in smaller stages, and it is hoped that merging two regional currencies will be easier than grouping several national ones with an existing regional one. However, by 2003, none of the member states scheduled to use the eco had met all four of the main criteria for financial convergence that are specified in the plan and the proposal was delayed.

TIMEFRAME: The integration plan sped up in 2005 after an ECOWAS meeting in Banjul, in the Gambia, resulted in a roadmap with more detailed convergence criteria and timelines to establish needed institutions and for countries to meet the standards. The plan calls for introducing the final currency by 2020, but there is much to be done in advance. The single currency roadmap specifies 2014 as the deadline for countries to harmonise tax policy, legal and accounting frameworks, and statistics collection.

Given the complexity of the shift towards a common currency, there are several challenges for ECOWAS to navigate. For example, it is not clear whether the eco would serve as an actual currency or exist as a virtual currency and in reality be more of a preparatory exercise. As a virtual currency it could be similar to the IMF’s special drawing rights, but no decision has yet been made as to whether it would be pegged to another currency or allowed to float, nor how to handle the role of France for the final single currency, given that the European country is not expected to offer a guarantee for the new regional currency as it does the CFA franc.

Also, the plan implies the dissolution of UEMOA, the CFA franc’s monetary union. This would be a sensitive move, given that of all Africa’s sub-regional organisations, it is the one that has made the most progress in encouraging economic integration.

For now, ECOWAS members are focused on meeting the criteria to qualify for this monetary union. There are four primary benchmarks to be achieved: an inflation rate of less than 10%; a fiscal deficit-to-GDP ratio of 4% or less (excluding donor funds); central bank financing of a fiscal deficit at a level that is 10% or less than the previous year’s tax revenue; and gross international reserves sufficient to finance at least three months of the country’s imports.

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