Amid the eurozone’s well-publicised difficulties, one might be forgiven for thinking monetary unions are falling out of fashion. However, the appetite for shared currencies is still strong in Africa, with two large regional groupings already proving their benefits, in Francophone West Africa and Francophone Central Africa. Although they are smaller-scale sub-regional monetary unions rather than the more ambitious euro project, they are nonetheless an important stepping-stone towards not only increasing economic integration but also realising longer-term goals of fiscal and monetary harmonisation across the continent.
FIRST STEPS: Established in 1945, the African Financial Community franc (Communauté Financière Africaine, CFA franc) is the name of one of two regional currencies backed by the French Treasury, each pegged to the euro at a rate of €1:CFA655.957, having previously been pegged to the French franc. The French central bank, moreover, manages their reserves. The Central African CFA is shared by the six countries of the Economic and Monetary Community of Central Africa, which includes Cameroon, Chad, Gabon, Equatorial Guinea, the Central African Republic and the Republic of the Congo – all bar Equatorial Guinea, which is a former Spanish colony that joined the Central African CFA in 1985, are former French colonies. The West African CFA comprises the eight countries of the West African Economic and Monetary Union (Union Economique et Monétaire Ouest Africaine, UEMOA), which includes Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, all of which are former French colonies, with the exception of Guinea-Bissau (a former Portuguese colony that joined the West African CFA in 1997). The two currencies are backed by their respective central banks, the Bank of Central African States and the Central Bank of West African States, based respectively in Yaoundé and Dakar. Both communities benefit from regional bourses. The ultimate aim is for the putative Eco – the currency planned for Nigeria, Sierra Leone, Gambia, Guinea and Ghana – and the two CFA currencies to be merged into a single, common currency for all of West and Central Africa. Together, the UEMOA and Cape Verde, along with the six member states of the West African Monetary Zone – Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone – comprise the Economic Community of West African States (ECOWAS), founded in 1975 by the Treaty of Lagos to promote regional economic integration.
CHALLENGES: The UEMOA, founded with the signing of the Treaty of Dakar in 1994, has on paper if not in practice a full Customs union, common external tariff (CET), macro-economic convergence criteria and surveillance mechanisms. However, labour and capital mobility are still impaired, while infrastructure and non-tariff barriers pose challenges to regional trade. The CET has not yet been fully implemented, and tax and Customs practices require further harmonisation. As negotiations between ECOWAS and the EU on an Economic Partnership Agreement (EPA) have stalled, Côte d’Ivoire’s interim EPA is set to come into force in 2014, with potentially grave implications for free trade between UEMOA countries. It is envisaged that the CET will be extended to the wider ECOWAS region, as had been agreed by the member states in 2006, but this initiative is already two years behind schedule. Essentially, this will involve the migration of non-UEMOA members of ECOWAS to those tariff bands already applicable in UEMOA, although there is concern that a new 35% tariff band could see an increase in the overall level of regional trade protectionism.
INCREASING INTEGRATION: In addition to the stated goal of a single currency, ECOWAS also aims to complete and consolidate its common market. When heads of state from ECOWAS met in February 2013, they committed to reinforcing integration efforts, “particularly those aimed at consolidating the common market, enhancing convergence programmes, promoting the private sector and boosting the resilience of the region through the implementation of appropriate sectoral policies”. Furthermore, the heads of state specifically committed to creating an ECOWAS-wide Customs union, stressing the importance of effective implementation of the group’s Protocol on Free Movement of Persons and Goods.
To support economic development and integration, ECOWAS also pursues programmes and policies in certain sectors. The relevant regional ministers agreed in April 2013, for instance, to set up a supra-national agency to oversee the construction of a trans-regional highway from Lagos, Nigeria to Abidjan, Côte d’Ivoire. This 1028-km corridor carries 75% of regional trade. Although no timeline was provided, the completion of such infrastructure improvements would undoubtedly enhance interconnectivity and trade integration in the region. In the long term, it is also possible that the West African Gas Pipeline, which currently runs from the Niger Delta in Nigeria to Ghana, may be extended as far as Côte d’Ivoire. Given the country’s dependence on gas for power generation, its intention to build several additional gas-powered thermal plants by 2015 and its current gas production shortfall of 30m cu feet per day, the integration of Côte d’Ivoire into this network is set to become increasingly salient.
With a view to promoting economic convergence in the region, UEMOA’s macroeconomic surveillance framework includes several fiscal rules: the fiscal balance should be in surplus, the debt-to-GDP ratio should be less than 70% and governments should not accumulate arrears on debt. Now that Côte d’Ivoire has benefitted from very significant debt relief, all member states comfortably meet the debt ceiling criterion. However, the budget balance requirement is more honoured in the breach than the observance across the region, perhaps because of the relatively weak enforcement mechanism. The Excessive Deficit Procedure sets out a sequence of steps, but without specifying a clear timeline or the conditions under which a country might by exempt. Under Article 71 of the UEMOA Treaty, moreover, the Council of Heads of State can agree unanimously to exempt a country from compulsory observance of the convergence criteria in the event of severe, yet unspecified, economic challenges.
IMPROVING OVERSIGHT: Not only does the UEMOA share a common currency, a Customs union and a central bank, but the regional financial sector is also nominally integrated. In a sense, the region already has a banking union along the lines of which the eurozone now aspires. The Banking Commission was created in 1990 to oversee the integration, regulation and surveillance of regional banking sectors, now comprising 106 banks and 13 financial institutions. With a new convention signed in 2007, the Banking Commission has the responsibility for granting and annulling accreditation to credit entities, for their surveillance and sanction, and for the appointment of administrators in the event of their liquidation.
A regional Financial Stability Committee has been established to coordinate the activities of the relevant authorities; to assess systemic risk and countervailing macro-prudential efforts; to address systemic dysfunction; to define and ensure implementation of appropriate corrective actions; and to make recommendations for the improvement of the financial system.
The region also shares a common stock exchange, the Regional Securities Exchange (Bourse Régionale des Valeurs Mobilières, BRVM), based in Abidjan, with branch offices in each of the member countries. The BRVM is regulated by the Regional Council for Public Savings and Financial Markets, also based in Abidjan. The exchange is an important source of bond financing for regional governments, but it has not proved to be a particularly dynamic source of funding for corporates, with low market capitalisation (12% of regional GDP in 2012), low liquidity and few initial public offerings (11 between 1998 and 2011).
Economic and political integration at the continental level under the aegis of the African Union is likely to remain largely aspirational for some time to come. Regional integration is seen as an important staging post on the road to this long-term goal, and West Africa has been leading the charge, particularly the largely Francophone sub-region to which Côte d’Ivoire belongs. Even there, however, where trans-regional solidarity appears strong, the integration project is still far from complete. The sub-region’s shared history, common language and single currency make it a promising laboratory for African integration. ECOWAS is an important forum for wider cooperation and integration. The CET may yet provide an example of how UEMOA standards can cover the ECOWAS region. The expansion of the CET and agreement of an EPA with the EU are important near-term challenges, but overcoming them and ensuring implementation can be a big step toward a regional Customs union and a foundation for deeper economic integration. As the largest economy in UEMOA, the most tightly integrated grouping on the continent, Côte d’Ivoire plays an important role in these developments. The return of domestic political stability and economic growth could facilitate the country to resume its role as a regional leader.
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