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

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

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 accepted common currency [1].

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, similarity in inflation rates, fiscal integration and political integration.

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 reserves not less than 3 months of import cover.

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 percent to complement the primary criteria.

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 the WAMZ [2].

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

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

**2014 2015 2016 2017**

**ECOWAS** �2.2 �2.8 �3.5 �3.6 **UEMOA** �5.9 �6.5 �6.4 �7.3 **WAMZ** �1.6 �1.2 �3.0 �3.0 Cape Verde �9.1 �6.4 �4.8 �4.8 Nigeria �0.9 �1.7 �2.2 �2.7 Ghana �7.1 �6.6 �11.0 �5.3 Cote d'Ivoire �4.0 �4.3 �5.0 �5.7 Senegal �8.5 �7.7 �7.0 �6.3 *Source: Annual Report and Statement of Accounts, West African Monetary Institute (WAMI), Accra (various issues).*

**Year West Africa SSA Africa Oil-importing countries** –2019 �2.9 (1.6) �2.8 (�1.9) �3.4 (�1.2) �4.3 (�5.9) �2.8 (�1.6) �3.6 (�4.4) �5.7 (�4.9) �4.5 (�7.5) �3.7 (�4.2) �4.3 (�6.2) �7.1 (�6.8) �4.8 (�6.7) �5.0 (�1.8) �4.6 (�4.6) �7.0 (�5.9) �4.7 (�6.3) �4.8 (�1.0) �4.5 (�3.4) �5.7 (�4.2) �4.5 (�5.5) 2018\* �4.4 (�1.4) �4.1 (�3.6) �4.7 (�3.5) �4.3 (�5.7) 2019\*\* 1**–**4.0 (�1.1) �3.8 (�3.5) �4.3 (�3.2) �3.9 (�5.7)

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

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

reduction.

*Regional Development in Africa*

**Table 2.**

**Table 3.**

*Source: see Table 3.*

**Table 4.**

**86**

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

on strategic imports such as capital cement its inability to meet the various convergence criteria [4].

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.

Several studies conducted by African scholars have highlighted the benefits and challenges of regional economic integration. These studies also suggested the way forward if the objectives of integration are to be achieved [5–7].

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

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

$$\mathbf{Yg} = \mathbf{f}(\mathbf{M2}, \mathbf{gcf}; \mathbf{X}) \tag{1}$$

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

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

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

• Persistence of economic and social divergence. Different growth paths of member countries may create migration from countries with high growth to

• Incomplete union. This a case of budgetary control in practice. This involves budgetary unification in order to smoothen consumption among member countries. However, it is a tall order as the fiscal operations of countries in the

those of low growth, and this may result in social disequilibrium.

when there is huge infrastructural deficit.

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

of Member States on the convergence process:

zone are far from being harmonized.

important for economic integration.

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

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

*Source: WAMI, Accra, Ghana.*

*Primary criteria—performance score.*

*Number of primary criteria satisfied by Member States.*

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

**Table 6.**

**Table 7.**

**89**

where Yg = growth in GDP; M2 = broad money supply; gcf = gross capital formation; and X = control variables.

#### **3.1 Convergence dilemma?**

**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 earlier period is in the Appendix.

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

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


#### **Table 5.**

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