**1. Introduction**

The Economic Community of West Africa States (ECOWAS) was established in 1975 with the aim of achieving a monetary union for the sub-region. ECOWAS consists of 15 countries that were colonized by the British, French and Portugal. The process towards economic integration has not been smooth. After 43 years of existence, with some marginal gains, enormous challenges face the bloc.

There is no doubt that there are benefits associated with a monetary union, for example, large market as well as a regional bloc for negotiating with other groups globally. The Institution has set several deadlines for eventual integration, but each deadline has not been met. Recently, the Heads of state and Governments have insisted on the year 2020 for eventual monetary union. The technocrats and policymakers seem to be working hard to meet the new deadline of 2020.

It must be noted that the Franco-phone economies are integrated (West African Economic and Monetary Union) with one Currency (CFA), one central bank and several approved protocols.

In 2000, in order to fast-track integration, another monetary zone known as the West African Monetary Zone (WAMZ) was established to work towards the

<sup>1</sup> Paper was presented at the American Economic Association (AEA), African Finances Economic Association (AFEA) and the National Economic Association (NEA), Atlanta, Georgia, January 1–4, 2018. I thank the participants at the conference whose comments have enriched the paper.

convergence of the currencies of the economies of WAMZ with the aim of aligning with the CFA to have a single currency for the region.

The WAMZ consists of The Gambia, Ghana, Liberia, Nigeria and Sierra Leone. An agency called the West African Monetary Institute (WAMI) was created to drive the process. WAMI was to ensure the convergence of the currencies of the six countries—the goal post for achieving a common currency has been shifted several times. The last deadline was the year 2020. The attempt to shift the 2020 deadline was resisted by the Heads of States and Governments.

Presently, the ECOWAS Commission has provided a single-track approach to a monetary union. The requirements for the fast-track approach are not too different from the convergence criteria set by the WAMZ. However, whether the proposed year of 2020 for the establishment of the monetary union is feasible is a matter of debate.

While the Heads of State and Governments appear to be optimistic at one hand, the technocrats on the other hand are pessimistic insisting that the primary criteria must be met by all the countries for integration to take place. Can the political consideration be ignored? After over 40 years of the creation of ECOWAS, the road towards a monetary union remains bumpy.

The objective of this paper is to re-examine the issues and possible challenges facing the West African sub-region as it 'progresses' towards economic integration.

The paper is organized as follows: following the introduction, Section 2 briefly examines the performance of the ECOWAS economy, while Section 3 provides the review of literature. Section 4 analyses the evidence using both stylized facts and regression approach. Section 5 provides the conclusion and recommendation. It is expected that the inherent discussion would provide further insights into the economic integration conundrum confronting the sub-region.

## **2. Performance of the ECOWAS economy**

The tables below briefly explain the performance of the West African economies for the period of 2011–2017. The growth in real GDP which stood at 6.2 percent in 2011 declined sharply to 2.8 percent in 2015. By 2016, all the economies in the West African Monetary Zone (WAMZ) were in a recession partly due to the collapse of commodity prices. The economic analysis of the fundamentals in the sub-region is the story of export in primary commodities whether agriculture and/or minerals. The fluctuations and volatility of commodity and mineral prices affect all other macroeconomic fundamentals either directly or indirectly (**Tables 1**–**3**).

The rate of inflation which was 11.2 percent in 2011 averaged single digit during the period, while the growth of money supply contracted at 19.5 percent in 2016 from a positive growth of almost 12 percent in 2011. Tax revenue as a percent of GDP remained very low during the period when compared to the African average. To meet the deficit/GDP criteria in spite of huge infrastructural deficit, this ratio remained within the benchmark with or without grants. It is necessary to note that if the deficit/GDP ratio is slightly violated in favor of capital projects (hard and soft infrastructures), there would be multiplier effects on the economies of the subregion.

Throughout the period under review, growth of GDP in WAMZ was below that of the entire ECOWAS. However, in 2016 most of the economies in WAMZ were in recession; growth in GDP was very marginal for the entire ECOWAS. The sharp drop in export commodities as well as structural problems contributed to the recession in 2016. The recession in a large economy like Nigeria has impact on other countries in the region.

*Source: Annual Report and Statements of Accounts, West African Monetary Agency (WAMA), Freetown, Sierra Leone.*

**85**

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

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

**Table 1.** *Trends in real GDP growth rates in ECOWAS*

 *member countries* 

*(2013–2017).*


*Source: Annual Report and Statements of Accounts, West African Monetary Agency (WAMA), Freetown, Sierra Leone.*

**Table 1.**

*Trends in real GDP growth rates in ECOWAS member countries (2013–2017).*

convergence of the currencies of the economies of WAMZ with the aim of aligning

The WAMZ consists of The Gambia, Ghana, Liberia, Nigeria and Sierra Leone. An agency called the West African Monetary Institute (WAMI) was created to drive the process. WAMI was to ensure the convergence of the currencies of the six countries—the goal post for achieving a common currency has been shifted several times. The last deadline was the year 2020. The attempt to shift the 2020 deadline

Presently, the ECOWAS Commission has provided a single-track approach to a monetary union. The requirements for the fast-track approach are not too different from the convergence criteria set by the WAMZ. However, whether the proposed year of 2020 for the establishment of the monetary union is feasible is a matter of

While the Heads of State and Governments appear to be optimistic at one hand, the technocrats on the other hand are pessimistic insisting that the primary criteria must be met by all the countries for integration to take place. Can the political consideration be ignored? After over 40 years of the creation of ECOWAS, the road

The objective of this paper is to re-examine the issues and possible challenges facing the West African sub-region as it 'progresses' towards economic integration. The paper is organized as follows: following the introduction, Section 2 briefly examines the performance of the ECOWAS economy, while Section 3 provides the review of literature. Section 4 analyses the evidence using both stylized facts and regression approach. Section 5 provides the conclusion and recommendation. It is expected that the inherent discussion would provide further insights into the eco-

The tables below briefly explain the performance of the West African economies for the period of 2011–2017. The growth in real GDP which stood at 6.2 percent in 2011 declined sharply to 2.8 percent in 2015. By 2016, all the economies in the West African Monetary Zone (WAMZ) were in a recession partly due to the collapse of commodity prices. The economic analysis of the fundamentals in the sub-region is the story of export in primary commodities whether agriculture and/or minerals. The fluctuations and volatility of commodity and mineral prices affect all other macroeconomic fundamentals either directly or indirectly (**Tables 1**–**3**).

The rate of inflation which was 11.2 percent in 2011 averaged single digit during the period, while the growth of money supply contracted at 19.5 percent in 2016 from a positive growth of almost 12 percent in 2011. Tax revenue as a percent of GDP remained very low during the period when compared to the African average. To meet the deficit/GDP criteria in spite of huge infrastructural deficit, this ratio remained within the benchmark with or without grants. It is necessary to note that if the deficit/GDP ratio is slightly violated in favor of capital projects (hard and soft infrastructures), there would be multiplier effects on the economies of the sub-

Throughout the period under review, growth of GDP in WAMZ was below that of the entire ECOWAS. However, in 2016 most of the economies in WAMZ were in recession; growth in GDP was very marginal for the entire ECOWAS. The sharp drop in export commodities as well as structural problems contributed to the recession in 2016. The recession in a large economy like Nigeria has impact on other

with the CFA to have a single currency for the region.

*Regional Development in Africa*

was resisted by the Heads of States and Governments.

towards a monetary union remains bumpy.

nomic integration conundrum confronting the sub-region.

**2. Performance of the ECOWAS economy**

debate.

region.

**84**

countries in the region.

It should be noted that the growth rate of 2.2 percent in 2017 is less than the growth rate of population which is about 3 percent. The growth rate must average about 10 percent and sustainable for 10–15 years to have a dent on poverty reduction.

Another disturbing trend in the region is the presence of twin deficits. The economies of West Africa experienced twin deficits throughout the period 2009– 2017. Instability in the external sector is not healthy for the economy of the subregion. In other to restore fiscal balance especially in the external sector, the countries might resort to borrowing with implications for the wider economy of the region (see **Table 4**). When the performance of the macroeconomic indices is juxtaposed with the rising misery index, it becomes certain that performance has

The literature on regional economic development efforts in Africa is vast, and we make no attempt to review them in this paper. There are about five stages towards a complete regional economic integration, that is, a monetary union. These stages include free trade area, customs union, common market, economic union and monetary union. Each stage has several requirements theoretically and in practice. In the West African sub-region, some successes have been achieved at various

A monetary union is the highest form of economic integration which is often characterized by the establishment of fixed exchange rates between the currencies of Member States and the harmonization of monetary and fiscal policies. Furthermore, there must be an authority such as the central bank to administer the

An optimum currency area (OCA) which is a currency area that affords the most efficient adjustment process in response to both internal and external disturbances is not only crucial but ideal. However, factors that influence the size of an OCA include the degree of the mobility of the factors of production and the degree of capital mobility especially financial capital. Other features are price and wage flexibility, economic openness, diversification in production and consumption, similar-

Another set of theoretical considerations centre around issues of convergence and vulnerability. Consequently, countries eager to be part of a monetary union are required to meet the following primary criteria to ensure currency convergence: (1) fiscal deficit plus grants of not more than 3.0 percent of GDP; (2) yearly inflation rate of less than 10 percent; (3) a central bank deficit financing of not more than 10 percent of the previous year's tax revenues; and (4) gross external

In some regional efforts, there may be secondary requirements such as in the WAMZ region—members are required to meet additional two secondary criteria, namely, exchange rate stability with nominal exchange rate depreciation/depreciation of not exceeding 10 percent and a public debt-to-GDP ratio not exceeding 70

As would be shown later, the economies of the sub-region have challenges in meeting both the primary and secondary criteria for convergence due to the vulnerability of their economies to various economic shocks particularly those related to commodity prices. Most the shocks are outside the control of the economies in

A recent study [3] confirmed the vulnerability of the economies of the WAMZ to external shocks. The components of the economic vulnerability indices (EVI), having trade openness, export concentration and dependence on strategic imports as its elements, clearly showed that the reliance of the economies of the sub-region on commodity exports, reliance on one or two commodities as well as the reliance

**3. Review of Literature and Theoretical Underpinnings**

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

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

stages, but there exist overlaps between the stages (WAMI, 2018).

ity in inflation rates, fiscal integration and political integration.

reserves not less than 3 months of import cover.

percent to complement the primary criteria.

the WAMZ [2].

**87**

not been satisfactory.

accepted common currency [1].


#### **Table 2.**

*Inflation in ECOWAS and WAMZ (2015–2017) (%).*


#### **Table 3.**

*Budget deficit (excluding grants) as % of GDP in ECOWAS.And selected countries.*


#### **Table 4.**

*Fiscal balance and external current account (including grants) in Africa 2009–2019 (% of GDP).*

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

Another disturbing trend in the region is the presence of twin deficits. The economies of West Africa experienced twin deficits throughout the period 2009– 2017. Instability in the external sector is not healthy for the economy of the subregion. In other to restore fiscal balance especially in the external sector, the countries might resort to borrowing with implications for the wider economy of the region (see **Table 4**). When the performance of the macroeconomic indices is juxtaposed with the rising misery index, it becomes certain that performance has not been satisfactory.
