Regional integration: Central African nations work to combine their individual strengths

Founded in 1975, ECOWAS has been pursuing its goal of regional economic integration for nearly four decades now. In recent years, as the EU has stumbled and faltered in its attempts to create a common foreign or security policy, and debt crises have stretched the eurozone to its limits, the wisdom of regional integration as a whole has been brought under scrutiny. However, moves in West Africa to encourage the harmonisation of fiscal policy and regulatory codes, alongside infrastructure sharing and increased regional trade, have continued unabated, seeing some success, although the 15 countries that make up the ECOWAS bloc are far from achieving their vision of a single, common market.

The region’s current strategic document, ECOWAS Vision 2020, lays out the broad goals the organisation hopes to achieve by the end of the decade. Although the removal of trade and Customs barriers – as well as the creation of a single monetary union – perhaps represents the most ambitious of the goals within ECOWAS Vision 2020, the roll-out of regional infrastructure networks, and the application of more broadly interpreted peace and security tenets are also noteworthy.

Potential In Diversity

The establishment of a regional economic body was intended to help West Africa increase the free movement of people, goods, money and labour across borders. Given the importance of external commerce, one of the organisation’s largest commissions is devoted solely to trade, including the establishment of common external tariffs (CET).

However, the mandate of the Macroeconomic Policy Commission extends farther than exports and Customs, and faces the complicated task of ensuring a cohesive union among different political economies. Part of the challenge comes from the disparities among the local economies of the 15 member states. Three countries are landlocked, while some have vast natural resources and rank as top producers for hydrocarbons and minerals, and others lack commodities.

Senegal’s economy is smaller and receives a great deal of international aid, but is also strengthened by its political stability, whereas Nigeria’s vast market is growing despite political uncertainty. Indeed, of all 15 member states, five – Côte d’Ivoire, Guinea, Ghana, Nigeria and Senegal – account for 90% of regional GDP.

Natural Wealth

Resources are unevenly distributed throughout the region – Nigeria has most of the oil, while Guinea has bauxite, Ghana gold and Niger uranium. While in many cases such variances would foster trade, West African countries for the most part lack the ability to process raw materials into finished goods or to ship these finished goods to markets, limiting the value brought about by the exchange of raw materials. Other barriers to trade include corruption and non-tariff barriers, such as impromptu road tolls extracted by people who have no authority to do so. A recent study by the World Bank and the IMF concluded that in African countries, each day of transit time en route to a port reduced the value of exports by approximately 7%.

The differences in business environments, particularly as they relate to legal frameworks and regulation, also add complexity at the regional level. For the most part, ECOWAS members have drawn heavily on the British and French systems of business and governmental oversight, a legacy of their colonial heritage that gives rise to different approaches to market management, judicial arbitration and economic policy, as well as more basic challenges, including linguistic differences.

Monetary Differences

However, the acknowledgement of diversity does not imply that there is no scope for common ground. Indeed, major steps have already been made to align key policies and indicators with one another. This is most evident in the West African Economic and Monetary Union (Union Economique et Monétaire Ouest Africainé, UEMOA), which was created in 1994 as a monetary union among the eight francophone ECOWAS member states that now share the Central African CFA franc (Coopération financière en Afrique centrale, CFA), pegged to the euro. Over half of ECOWAS members use the CFA franc currency and to achieve the goal of harmonising across the ECOWAS bloc by 2020, the next step planned is for the establishment of a new currency in the putative West African Monetary Zone, which includes Gambia, Ghana, Guinea, Nigeria and Sierra Leone. Plans to debut the new currency, the eco, are now set for 2015, though achieving this will involve the task of synchronising national macroeconomic, monetary and fiscal policies OPEN BORDERS: Harmonising trade and Customs procedures remains the second of the major economic objectives of ECOWAS. Trade has traditionally been marginal among ECOWAS states, comprising only 10% of the region’s total volumes.

After the unified currency, a singular trade and Customs union is due to be implemented by 2020, though the implied loss of sovereignty and uneven enforcement has limited progress towards this goal thus far. However, lower cross-border costs between countries will provide significant advantages in terms of negotiating trade deals on a larger scale An IMF study has also suggested that any revenue losses from an ECOWAS Customs union, which have been mentioned as concerns by some member states, are likely to be minimal. Current revenue from tariffs applied to ECOWAS goods average 0.1% of GDP, ranging from almost 0% in Mali to 0.6% in Burkina Faso. However, the IMF also suggests that the introduction of a CET and an economic partnership agreement (EPA) with the EU would have a significant impact on the tax revenues of select member states, although this does not necessarily take into account any resulting increase in trade volumes. For example, Togo would see tariff revenues fall from 8.4% of GDP in 2005 under the UEMOA CET tariff schedule to 3.9% under an ECOWAS-wide CET and an EU EPA. This is largely because the EU currently accounts for 55% of the country’s imports.

ECOWAS took a significant step towards a Customs union following an agreement on a tariff level for the fifth band of a regional CET. In November 2008 Nigeria agreed to a top band of 35%. The new CET structure will be harmonised with the existing UEMOA CET, which has four bands: 0% for essential social goods, 5% for essential and basic raw materials and capital goods, 10% for semi-processed intermediary products, and 20% for finished consumer goods.

Although considerable efforts have been made so far, measuring the actual results may prove challenging. “Intra-African trade is difficult to measure because of the paucity of statistics on the continent,” Yannick Gotta, managing director of France-based courier company Chronopost International, told OBG.

Infrastructure

In addition to integrating economic and monetary systems, the nations of ECOWAS are looking to improve connectivity among member states. This remains a crucial aspect to improving intra-regional trade as a deficiency of infrastructure has been one of the primary limiting factors in the movement of goods across borders. Indeed, the cost to ship a container within the region compared to Europe has traditionally been up to $300 higher, and compared to OECD countries, the time for exporting and importing containers is nearly three times as long.

The construction of a West African highway network (also referred to as the Trans-West African Highway) spanning 11,000 km from Lagos, Nigeria to Nouakchott, Mauritania as well as from Dakar, Senegal to N’ djamena, Chad remains one of the community’s principal objectives, though after nearly four decades of development, it still remains only partially finished. Even if completed, West African road networks are notorious for their long checkpoints and border controls, a problem which must also be addressed while improving freedom of movement for both goods and people. A USAID study in 2010 found that checkpoints on roads could add up to $14 per 100 km in some countries.

Notable progress has been made in terms of energy distribution and regional electrical transmission. ECOWAS has three major goals it aims to reach by 2015: to provide half the rural and semi-rural population of the region with basic energy access; to bring motive power – which is required to run motors or machinery – to at least 60% of the rural population; and to bring electricity to at least two-thirds of people. Other long-term targets include the integration and interconnection of electricity grids to implement a West African energy grid. The West African Power Pool is a blueprint for a regional electricity grid that will quadruple capacity by 2020. The project includes laying 5600 km of power lines and would give the region installed capacity of 17,000 MW – enough to meet demand until 2023.

End Goal

Uniting 16 nations with a combined population of 308m and a GDP of more than $1.3trn, according to the UN, is clearly a complex task. The challenges ahead for completing economic, trade and monetary unification among members of ECOWAS loom large. The vast differences in culture, language and political systems in Europe and the recent difficulties within the EU have proven that such harmonisation does not come without risk. Nevertheless, a fully integrated trade and economic system presents benefits that on face value largely outweigh such challenges, though only time will tell if they can be overcome by 2020.