The External Sector of Africa's Economy

Economic welfare is assumed to be pursued by an African country considering or evaluating its Regional Integration Arrangement (RIA) membership. The proposed approach assigns to imputed residuals computed from pre-integration trend lines the change in after reform per-capita GDP and gives an estimate of the economic gain that arises from the integration initiative for each member country. The timing of the gain is also identified starting from the year of integration enactment. For the sampling period 1970–2016, the results show that members of the UEMOA benefitted significantly and rapidly from the reform of 1994 while CEMAC countries reaped a significantly lesser gain. Considerable gains also accrued to EAC members over the period 1978–2016.

In this paper, we seek to answer three main questions: first, what are the long- and short-run determinants of current account balances in West Africa; second, is there a sustainable path for the current account position that is consistent with regional integration; and if yes, what has been the process of adjustment towards such a path. We address these questions by first identifying the long-term determinants of the current account, and then using the results to calculate the equilibrium sustainable targets for the current account in the region. After accounting for short-run disequilibrium adjustment processes, we show how far apart each country is from the regionally sustainable path. The key findings are as follows: the determinants of current account dynamics differ depending on the time horizon; the real exchange rate, fiscal policy, trade openness, investment, and income levels are the key determinants in the short run; there is considerable variation in the deviation of each countries’ current account position from the regionally sustainable equilibrium path. Some implications for policy are highlighted.

This paper analyses the obstacles to strengthening economic integration in the West African Economic and Monetary Union (WAEMU). Several studies show, firstly, that strengthening economic integration requires an increase of intra-trade in Regional Trade Agreements (RTAs). But it is not the case WAEMU where trade between member countries is rather low. This work identifies both the economic and political factors that limit economic integration in WAEMU and how they impact trade between members.

In order to rank such potential obstacles, the study develops an extended gravity model, using a panel dataset for WAEMU from 1996 to 2013 for all member countries. Bilateral export flows between member countries are used as endogenous variable.

Beside the classic variables (income, population size and distance), the effects of three factors (infrastructure, economic policy and political tensions) were taken into account. The empirical results show that the state of infrastructure gaps—in particular telecommunications and transport networks greatly—slow down economic integration within WAEMU.

The paper sets out to determine the extent which West African economies are integrated, their take in the global value chains and some important parameters which could influence their trade flows given the perceived structural heterogeneity amongst them. The findings and results from the West African Enabling Trade Index, their participation in Global Value Chains and estimated simple gravity model among others suggest that trade performance of the subregion did not sufficiently improve. Second, access to trade finance and identifying potential markets and buyers were among the most problematic factors that inhibit export trade in the region. The implication is that reducing these barriers will enable trade contribute to prosperity and welfare. Rising depth of integration in the sub-region, though marginal, is associated with rising income over time. As such, if the sub-region were to pursue a strategy of development anchored on integration and laced with value chain creation, income levels could improve as they acquire new capabilities and diversification In addition there is evidence of economic size (GDP) and geographical nearness (proximity and infrastructure) of West African economies to be very significant in inter and intra-trading. The paper recommends that the West African region rather than be overwhelmed with observed limitations, the subregion should leverage on its enormous potential to integrate into the global value chains. This can be achieved through deliberate efforts to build developmental states, promote export diversification, enhance structural transformation and harness the dividends of its demographic transition. It is only then, trade for inclusive development and equity can be achieved; else, the ‘Africa is rising’ paradigm would be a mere slogan associated only with its rising population as well as rising export commodity prices.

Since the 2008 financial crisis and the 2010 European debt crisis, and their impact on African exports, strengthening regional integration appears to be an alternative to building resilience to shocks and promoting economic development in West Africa. Experience shows that the debt crisis in Europe has negatively affected exports of several African countries. Similar effects have been observed during the recent decline in commodity prices. Given that countries of the Economic and Monetary Union of West Africa (UEMOA) are agriculture dominant countries with the share of agricultural value added to GDP representing between 20% and 46% of countries, boosting intra-region trade, specifically intra-WAEMU agricultural exports, can serve as a key factor for inclusive development in West Africa.

The inclusiveness of the development is strengthened by the fact that most of the population in West Africa lives in rural area and does not benefit directly from the broad economic growth at macro level. Intra-regional trade in agricultural products in such a condition could contribute to reducing inequality and poverty.

One of the constraints to trade in West Africa is the quality of transport and the related cost of transportation and logistics including non-tariff barriers that jeopardize competitiveness of West African products as compared to imported goods from outside WAEMU. Several goods imported from out of the continent, especially from Asia, Europe and America have been more competitive than the intra WAEMU products.

The main research question is the impact of distance (transport/logistical cost) and the level of development on intra-WAEMU agricultural exports. The paper analyzes the determinants of intra-WAEMU trade in agricultural products and therefore the variables on which policymakers could act to promote intra-regional trade. The analysis uses panel data in a gravity model over the period 1996–2013 covering seven (7) West African Countries with yearly data. The results indicate that the two gravity factors meaning the level of development measured by GDP as well as the distance are highly significant at 1% with the expected signs.

Regarding the four control variables namely population (pop), foreign direct investment (FDI), Political stability and the Common External Tariff, all of them have the expected signs but only FDI with 2 lags is significant. Similar to the core variables of the model, FDI is strongly significant at 1%.

Overall, the results indicate that 1% increase in GDP leads to 0.9% increase in intra-regional export of agricultural goods. This calls for actions to deepen the Common agricultural policy of WAEMU for agricultural transformation in WAEMU zone in order to improve the wellbeing of the poor. On that result, the agricultural transformation strategy for Africa recently adopted by African Development Bank is timely.

As for the distance, a 1% increase in the distance leads to 0.8% decrease in intra-regional agricultural exports. This call for deeper actions at WAEMU level to modernize the corridors and reduce red tape and roads harassment.

As for FDI, 1% increase in FDI leads to 0.25% increase in intra-regional exports. This call for actions at WAEMU level to attract FDI in the agricultural sector for the exploitation of the abundant available arable land in WAEMU member countries.

The paper conducted comparative analysis of the effect of trade liberalization on food security in CEMAC and WAEMU Countries with data spanning the period 1987–2014. Overall the findings lead to the conclusion of a negative effect in general. The beneficial effect of trade on the food situation is most visible in terms of availability. Also, it leads to lower prices. However, adverse terms of trade appeared to wipe off the positive effects and lead to food insecurity. This outcome is robust for both the CEMAC and WAEMU samples. With regard to policy, these countries should implement trade policies to facilitate of openness, while supporting and diversifying domestic food production.

The objective of this paper is to identify the categories of services likely to foster structural transformation and economic growth in ECOWAS. This paper seeks to move beyond theoretical exercise by offering policy solutions which could streamline services trade in ECOWAS, thereby allowing it to take advantage of expansion in this sector. For this, we rely on data from ECOWAS countries between 1995 and 2015 from the UNCTAD database and WDI (2016) database. Results from a dynamic panel model show that for each ECOWAS countries there is at least one category of services that promotes structural transformation and/or economic growth. Services trade (imports and/or exports) could be a powerful tool for economic growth, structural transformation and integration if the various countries rely on the appropriate service for this purpose.

The current global commodity price shocks have generally affected many commodity dependent countries and also raised serious questions on the viability of regional blocks whose member countries are predominantly commodity-based economies. ECOWAS sub-region typifies evidence of primary export as the main source of foreign exchange to member countries, thereby making them susceptible to commodity price shocks. This paper examines the effect of commodity price shocks on ECOWAS member countries using a panel data of 13 member countries for the period 2000–2015. Dynamic General Method of Moment (GMM) technique was adopted using an instrumental variable (IV) regression model. The results showed that precious metals were positively but insignificantly related to gross domestic product per capita which the study adopted as a measure of macroeconomic indicator. Also, there was a positive and statistically significant relationship between energy prices and the dependent variable. However, a negative relationship was observed between non-energy prices and gross domestic product per capita. In addition, the results showed that 87% of the economy is susceptible to energy price shocks. This result forces a rethink of the integration agenda not only along monetary lines, but also along diversification integration.

The paper examines the appropriateness of devaluation in improving trade balance in the six WAMZ countries. The motivation is largely derived from the need to reverse the deteriorating external sector of these countries which has become worrisome particularly from the latter half of 2014 on the backlash of slump in commodities prices and tight global monetary condition. The study employs descriptive analysis, granger causality technique, and Vector Error Correction Model (VECM) to analyze the impact of devaluation on trade balance in these countries. Two other control variables, domestic and global output, are included in the model to capture the impact of domestic and global shock while the data covers the period 1980–2014. The trend analysis reveals considerable volatility in real exchange rate in all the countries with the exception of the Gambia while there is a virtual absence of co-movement between devaluation and trade balance in all the countries. All the series are integrated to the first order while Johansen cointegration test indicates the existence of long run relationship among the variables employed in the study.

Results of the normalized long run model indicates that the coefficient of real exchange rate is positively significant in only Liberia while it is negatively significant in the Gambia only. Real exchange rate is not significant in the remaining four countries, suggesting that devaluation may not lead to an improvement in trade balance in the WAMZ countries except probably in Liberia. Results from the models further suggest that external condition like expansion in global output tends to have positive impact on trade balance though the effect is not significant in all the countries. The variables are virtually not significant in the short run models for all the countries while the vector error correction term is suggestive that the impact of shock to trade balance does not wane rapidly. The study recommends, among others, that devaluation may not be the most appropriate policy option to improve trade balance in these countries while these economies should endeavor as much as possible to improve the export content of Gross Domestic Product in order allow local economic condition drive trade balance.

The Economic Partnership Agreement (EPA) continues to court controversy. Many ECOWAS countries together with other civil society organizations have expressed concern over the agreement and continue to campaign against it on grounds of possible damage to West Africa’s fragile economies from opening their markets to free trade with the European Union (EU). This notwithstanding, the objectives of the EPA highlight fundamental agreement between both EU and ECOWAS countries about the instrumental role that the agreement could play in pursuing sustainable development goals by recognizing the importance of implementing competitiveness, poverty alleviation strategies, ensuring EU assistance for structural transformation and embracing the principles of asymmetrical liberalization. The literature provides evidence to the fact that not every developing country integrating into the global economy may be considered positive because trade liberalization on its own cannot ensure the attainment of development objectives from an economic, social and environmental perspective.

This paper analyses the ECOWAS-EU EPA agreement attempting to answer the question: how does the agreement foster both international trade and inclusive development by promoting investment and sustainable growth? Using evidence from countries in the ECOWAS sub-region, this discussion paper covers the following thematic areas: (1) external sector development impact of the EPA agreement and (2) the impact on fostering inclusive growth and development. Our analyses indicate that the EPAs will pose a number of policy challenges for West African countries as their economies increasingly morph into the global economy. However, the EPA provides an opportunity to fast-track global trade and the regional integration agenda in West Africa. It is important that the EU treats the EPA as an instrument of development cooperation and not a conduit to pursue mercantilist corporate interests as did happen in colonial times. We also find out that balanced growth and poverty reduction are not automatic outcomes from liberalization processes, but rather these objectives must be actively promoted by complementary policies in conjunction with appropriate fiscal adjustments in order to fully gain from trade liberalization.