Integration in West Africa has come in fits and starts, and with varying levels of success. With two large economic blocs – including the 16-member ECOWAS grouping and the smaller subset of Francophone members, the 8-member West African Economic and Monetary Union (Union Economique et Monétaire Ouest Africaine, UEMOA) – West Africa has a variety of agreements in place that stitch together its constituent countries. There is a common external tariff, for example, throughout ECOWAS, and within UEMOA, there is a shared currency and financial regulation, as well as a regional stock market, the Bourse Régionale des Valeurs MobilHowever, as the capital markets within West Africa look to expand their international profile and attract greater portfolio flows from abroad and listings from domestic firms, they are increasingly looking to strengthen integration of the larger stock exchanges. The benefits of doing so are clear. The Ghana Stock Exchange (GSE), for example, could boost liquidity, encourage new instruments and improve access to capital by linking with the larger Nigerian Stock Exchange (NSE). At present, the NSE is the largest stock exchange in the region by far, with an $80bn market capitalisation, more than twice that of the GSE, which is itself double the size of the BRVM. But together they make a compelling combination. The grouping would have the critical mass that would get noticed internationally, and it would offer a wide range of investment options for its domestic investors. Just as the smaller markets would get exposure to the capital of the larger markets, Nigeria would get direct access to a diverse range of opportunities in the smaller of the markets. Operational efficiencies are also possible as economies of scale are achieved from the pooling of efforts and institutions.
Slow Going
In recent years financial integration efforts in West Africa – though a long time coming – have begun to bear fruit and real progress could be achieved over the next few years. The West African Capital Markets Integration Council (WACMIC) was formed in 2013, and the council seems to have been productive. Much is quite technical at this point, but very important if the markets are to work together. For example, trading hours have been harmonised (9am to 3pm), and a standard settlement cycle has been agreed upon: T+3 (trade date plus three days) for equities and T+2 for bonds. A roadmap has been put into place that calls for a phased approach. Phase one will involve the formalisation of relationships that already exist crossborder. The first phase will bring access to brokers to markets in other member states via agreements with corresponding brokers. Phase two would create a passport system that would give brokers and other intermediaries direct access to markets elsewhere in ECOWAS. Phase three would create a single unified platform, the West African Securities Market.
First Steps
Phase one is already being implemented. While it will allow investors no more access than they already have, the first step is seen as important because it requires a level of agreement and coordination not before seen in the regional capital markets. The next major step currently planned is the full dematerialisation of securities in the region by the end of 2015, which will allow for the easier settling of shares cross-border and ultimately the unification of markets.
Ghana may have some difficulty in meeting some of the standards set. Its new Securities Industry Law has yet to be passed, and its regulations are not yet up to international standards. Regionally, banking system integration is not where it needs to be; even payments systems are not yet fully and seamlessly connected. Until they are, ECOWAS settlement will be difficult.
And ultimately, as other blocs such as the EU and the Association of South-east Asian Nations have found with their own financial integration – and ECOWAS has found with its attempts to create a single market in goods and labour – the most difficult steps of the process require the giving up of substantial control over institutions, laws, systems and markets. This has not been easy anywhere, and it could be a challenge for WACMIC.
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