*Economic Integration in West Africa: A Reconsideration of the Evidence DOI: http://dx.doi.org/10.5772/intechopen.86655*


*Source: WAMI Annual Report (various issues).*

## **Table 6.**

on strategic imports such as capital cement its inability to meet the various conver-

Several studies conducted by African scholars have highlighted the benefits and challenges of regional economic integration. These studies also suggested the way

We next utilize stylized facts and regression approach to reconsider the issues and challenges facing economic integration in the West African sub-region after

Notwithstanding the paucity of data, we will attempt to estimate the following

where Yg = growth in GDP; M2 = broad money supply; gcf = gross capital

From 2001 to 2015, The Gambia only met the inflation and import cover requirements, while Ghana met only one requirement, that is, import cover. Liberia satisfies four requirements, while Nigeria satisfied three criteria. Sierra Leone and Guinea both met three requirements. As a zone, all the countries struggled to meet the requirements during the period of 2001–2015. The number of primary criteria

Performance score is calculated as the sum of numbers of countries satisfying each criterion expressed as a percentage of total expected score on all four criteria.

> **Central bank deficit financing (<10%)**

**Gross external reserve (**≥**3 months of imports)**

**Tables 5**–**7** and **Tables A1**–**A5** in the Appendix provide a summary of the status of the convergence criteria required for progress towards currency convergence necessary for economic integration during the period of 2001–2016. The data for

Yg = f(M2, gcf; X) (1)

It is, therefore, crucial that while not dismissing the importance of currency convergence, it is paramount to think outside the box and optimize other benefits of economic integration by being practical and functional. Even with the economic space for progressing towards a monetary union, there remain several unsettled issues.

forward if the objectives of integration are to be achieved [5–7].

gence criteria [4].

*Regional Development in Africa*

relationship:

examining the convergence matter.

formation; and X = control variables.

**3.1 Convergence dilemma?**

earlier period is in the Appendix.

**Indicator Inflation**

met by each country is summarized in **Table 5**.

**(<10%)**

*Source: WAMI Annual Report (various issues).*

*Average primary convergence criteria (2001–2015).*

**Table 5.**

**88**

Six countries were assessed, giving a total expected score of 24.

**Fiscal deficit (<4%)**

The Gambia 6.8 4.4 20.5 5.3 Ghana 14.5 4.9 10.0 3.6 Guinea 15.6 3.3 10.3 2.3 Liberia 9.0 �0.6 0.0 2.8 Nigeria 11.9 3.2 2.4 10.2 Sierra Leone 10.4 7.5 11.8 3.8 WAMZ 11.4 3.8 11.0 4.7

*Number of primary criteria satisfied by Member States.*


*Source: WAMI, Accra, Ghana.*

*Performance score is calculated as the sum of numbers.*

#### **Table 7.**

*Primary criteria—performance score.*

Examining the performance scores, meeting the primary criteria declined from almost 71 percent in 2011 to 54.2 percent in 2016. Though there are always reasons for poor performance, the underlying question is whether the convergence criteria should be both the necessary and sufficient conditions for economic integration. It is surprising why and how the economies in the zone try to meet the deficit/GDP when there is huge infrastructural deficit.

It seems desirable to invest in capital projects to foster integration. If that is the case, then there is nothing absolutely wrong in borrowing to fill the gap provided the amount borrowed is utilized in capital projects that would pay its way. While fiscal discipline is crucial, infrastructure is necessary for increased trade which is important for economic integration.

Another element affecting convergence is the matter of vulnerability of the zone to external shocks. WAMI [3] identified the following implications of vulnerability of Member States on the convergence process:


• Risk of exchange rate crisis. How stable would the accepted and unified currency be? There are issues of convertibility to global currencies such as the US dollar and the British pound, among others.

• There is a huge infrastructural deficit in the zone. The absence of good roads, railways and good air connection coupled with poor electricity supply cannot

*Economic Integration in West Africa: A Reconsideration of the Evidence*

• Economic diversification. The high vulnerability of the economies of the subregion compels the need for economic diversification implying that economies in the region must earn revenue from other sources other than the export of primary commodities whether agricultural or minerals. We have shown elsewhere through panel regression analysis that private sector investment, GDP per capita growth, infrastructures, trade openness and public investment enhance economic diversification. The economies in the sub-region export similar goods; hence it is difficult to trade among themselves. Consequently,

• Fiscal consolidation and coordination. It is important to begin to address the fiscal imperatives of integration. This goes beyond meeting the deficit-to-GDP ratio. Are the economies ready to have a unified budget? Has each economy passed and implemented its fiscal responsibility? Arising from the European Union experience, the fiscal aspect of regional integration is key to the process of consolidating a monetary union. In addition, it is necessary to harmonize the indirect taxes in the zone. For example, VAT in Nigeria is 5 percent, while it is

• The citizens in the zone have integrated as evidenced by their ability to move between the countries notwithstanding the challenges. In fact, they trade to some extent with the currencies of the member countries. The Ghanaian cedi is accepted in the Balogun Market in Nigeria, while the Nigerian currency, the naira, is accepted in most markets in member countries. The informal sector is waiting for the policymakers and bureaucrats to formalize the process of currency convertibility within the zone. In this regard, the East African experience is a case in point. The Kenyan shilling is quoted in Tanzanian banks and vice versa.

• Political commitment. Without this variable, there would be no economic integration. The economics though crucial cannot be 100 percent. Once the politicians take the decision after considering the economics to some extent, other economic variables would adjust. The road to economic integration no matter the theorizing cannot and is never linear. It has bumps, but once there is political commitment, the challenges would be addressed as the process

• Growth trajectory versus misery index. The growth of GDP in the sub-region averaged about 3 percent which is almost the same growth rate of population. However, a bigger question would be to investigate the misery index in the various countries. For example, in Nigeria which is the largest economy, the misery index has shown an upward trend during the period under review.

• The 'conflict' between the Anglophone and Franco-phone countries. The issue to address is whether the Franco-countries would delink with France given the strong historical ties. The CFA has a fixed parity with the Euro, and the reserves of the Franco-phone countries are domiciled in Paris with certain conditions. If the Franco-phone countries delink with France, then certain macroeconomic fundamentals such as inflation rate would definitely exceed

the benchmark set by the ECOWAS Commission.

diversification implies the urgency of industrializing the zone.

foster economic integration.

*DOI: http://dx.doi.org/10.5772/intechopen.86655*

15 percent in Sierra Leone and Ghana.

continues.

**91**


The inconsistency in meeting the primary and secondary criteria for convergence overtime suggests the need to stress other economic variables. It would be extremely difficult if not impossible for all the member countries to meet the criteria at the same time. The evidence from 2001 to 2016 confirms this position. Consequently, it may desirable to consider point convergence and/or convergence by two big economies in the zone in addition to other factors in order to push ahead the integration process.
