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Could regional integration be a first step toward joining the global market? In a context where liberalizing trade has not produced the expected gains in developing countries and growth in global trade has not led to the expected economic growth, an alternative solution has emerged. This new paradigm suggests that trade liberalization should be accompanied by public investment. However, by its very nature, trade liberalization leads to a reduction in revenues from duties and taxes, which means that the available resources for public investments will also be reduced. There are now solid arguments for encouraging the less-developed countries to first emphasize regional integration before trying to access the global market.

This book explores the issues linked to regional integration in West Africa and presents empirical data about the experiences in = West African Economic and Monetary Union (WAEMU) countries to converge their economies. It also examines how these efforts, which make a major contribution to regional integration, influence poverty reduction in the economic and monetary community. It will be of interest to researchers working in this area.

Elias T. Ayuk is Director of the United Nations University Institute for Natural Resources in Africa in Accra, Ghana, and was formerly a senior program specialist at the International Development Research Centre. Samuel T. Kaboré is a researcher/lecturer at the Faculty of Economics and Management at the University of Ouagadougou II, Burkina Faso.

Canada’s International Development Research Centre (IDRC) supports research in developing countries to promote growth and development. IDRC also encourages sharing this knowledge with policymakers, other researchers, and communities around the world. The result is innovative, lasting local solutions that aim to bring choice and change to those who need it most.

Elias T. Ayuk is Director of the United Nations University Institute for Natural Resources in Africa in Accra, Ghana, and was formerly a senior program specialist at the International Development Research Centre. Samuel T. Kaboré is a researcher/lecturer at the Faculty of Economics and Management at the University of Ouagadougou II, Burkina Faso.

Canada’s International Development Research Centre (IDRC) supports research in developing countries to promote growth and development. IDRC also encourages sharing this knowledge with policymakers, other researchers, and communities around the world. The result is innovative, lasting local solutions that aim to bring choice and change to those who need it most.



Chapter 1. Introduction: Why Integrate?

This book explores two issues that are topical in developing countries: regional integration and poverty-reduction strategies. Economic grouping provides opportunities for improving the living conditions of populations. They are accompanied by allocation and accumulation effects, which are two major beneficial pillars of regional integration. The 15 chapters in this book do not only examine what is required for the convergence of African economies, which constitutes an absolute prerequisite for improving the welfare of populations, but they also look at some instruments that could play a central role in poverty-reduction strategies.
Elias T. Ayuk, Samuel T. Kaboré

Economic convergence and fighting poverty

Chapter 2. Fifteen Years of WAEMU: Results and Strategies for the Future

After 15 years of existence, WAEMU has recorded some undeniable successes, particularly in its currency management, its exchange policy and in the organisation of its stock market. It has also managed to preserve the solidity and reliability of its institutions and its members’ adhesion to the community project. However, although there continues to be respect for its neutrality, independence and authority, it is facing difficulties improving in other areas that are, certainly, new to its scope of responsibilities. WAEMU is one of the most disadvantaged community areas in the world in terms of human development, and according to UNDP human development index (HDI) its ranking continues to regress. Furthermore, the growing economic divergence between the richest and the poorest countries highlights the failure of national policies in individual countries and the Union’s inability to help these countries in a significant manner within the current framework, which is an element that could threaten cohesion.
The significant improvements that one can expect of the Union are not in the monetary arena, where it has managed to preserve and strengthen the gains from the West African Monetary Union (WAMU) that preceded it, but rather they are in those areas that continue to fall under national competence. There are four kinds of priority strategic actions that emerged from the analysis of WAEMA’s institutional and programming results. First, WAEMU’s economic and social—and therefore budgetary—policy competence should be broadened beyond monetary issues, and the states should envision conceding part of their sovereignty, which would strengthen the Union’s ability to exploit its full potential. Increasing the Commission’s revenues would make it easier to implement community projects that have been suspended or abandoned due to a lack of funding.
Secondly, the Union should focus on strengthening the weakest countries, both to improve the social situation of residents of those countries and to facilitate the equalisation process, which is key to all community projects. Thirdly, the Union should enact a social pact whose main goal would be to improve the standard of living of all its residents. Implementing the social pact would occur at the community level, under the Commission’s overall authority and adequate financing. The fourth strategic priority would consist of increasing mobility within the Union to remove non-tariff barriers and untimely roadblocks, of encouraging the development of cross-national value chains within the Union and of reinforcing the creation of infrastructures that promote mobility.
Diery Seck

Chapter 3. Growth and Convergence in Africa: A Dynamic Panel Approach

This study focuses on standard of living convergence within African countries. It evaluates the convergence process of per capita income using the concepts of σ-convergence and β-convergence. The analysis covers 46 countries from a variety of different regional economic communities (RECs); the period studied spans 1985–2005, using data from the World Bank’s World Development Indicators (2007) database.
The methodology adopted to test the convergence hypothesis was inspired from that used by Evans and Karras (J Monet Econ 37:249–265, 1996). The originality of the latter is that it combines both panel data and determination of stochastic series dynamics for per capita income in each country. Two estimation techniques were applied: the generalised method of moments (GMM) and the least squares dummy variable corrector (LSDVC) model, which is more effective on smaller samples.
The results indicate an absence of income convergence for all African countries. This non-convergence is primarily due to the great heterogeneity that exists among the countries. However, analysis of the RECs shows some β-convergence. Indeed, out of the five groupings studied, four constituted convergence clubs: ECOWAS, CEMAC, WAEMU and SADC.
In these RECs, a fixed-effects analysis was carried out, showing that the investment-to-GDP ratio is significantly linked to unobservable structural disparities. For example, demographic growth influences convergence in income level in the ECOWAS, while trade supported income convergence in the WAEMU area and proved to be insignificant in other RECs. This situation could be inherent to the low levels of intra-regional trade in the various RECs (under 13%).
The study recommends policy measures aimed at promoting intra-regional trade, the harmonisation of investment policies in the various RECs, along with policies that aim at making the African Union more effective in order to facilitate African integration and, in this way, standard of living convergence.
Pierre Joubert Nguetse Tegoum, Pascal Nakelse, Roland Ngwesse

Chapter 4. Has There Been Real and Structural Convergence in WAEMU Countries?

The goal of this study is to examine the process of real and structural convergence in the WAEMU from 1970 to 2005. This is undertaken using σ-convergence, smoothing spline regression and β-convergence. Demand-side structural convergence is measured by real gross capital formation per capita and supply-side structural convergence by total factor productivity or the Solow residual (1957). Real convergence is assessed by real per capita GDP. The data used are annual WAEMU observations that come from the World Bank 2007 CD-ROM. The results of the study bring to light the presence of real and structural convergence respectively for the periods 1976–1991 and 1975–1991. In contrast, there was an absence of structural convergence for the periods 1970–1975 and 1992–2005 and of real convergence for the periods 1970–1974 and 1992–2005. β-Convergence helps show that structural convergence is a necessary condition for real convergence for the period 1975–1991 and a sufficient condition for the period 1992–2005. So, in the WAEMU, by evaluating structural convergence, one also evaluates real convergence. We also noted economic foundations such as investment and demographic growth do little to feed growth in WAEMU countries, where growth depends rather on total factor productivity or the Solow residual, generally assimilated with labour organisation and with production techniques that can be influenced by institutional and macroeconomic frameworks.
Nacisse Palissy Chassem

Chapter 5. The Impact of the Convergence, Stability and Growth Pact in the WAEMU

In the WAEMU area, nominal convergence is regularly monitored and is the object of increasing interest. However, few studies have focussed on the real convergence of WAEMU countries, and in particular the contribution the Convergence, Stability and Growth Pact (CSGP) has made to the dynamics of real convergence. The goal of this study is to analyse the effect of the pact on the dynamics of real convergence. After examining the concept of sigma-convergence and convergence in distribution, we use the beta-convergence approach with panel data in order to take into account the differences of technological state that exist among the countries. We use the GMM system to correct for the endogeneity bias, and the results suggest that one cannot reject the hypothesis of conditional convergence and that the pact triples the speed of levelling the gap of real per capita GDP in WAEMU member countries for the period 1997–2008. So, adopting the CSGP improved the overall standard of living in the Union’s member countries. The study has, however, some limitations, notably the reduced time dimension and the fact that it did not take into account non-monetary aspects of poverty.
Adama Combey, Komla Mally

Chapter 6. Real Convergence in the WAEMU Area: A Bayesian Analysis

The objective of this study is to understand the process of development of Union countries by analysing real convergence. To reach this goal, it analyses absolute and conditional convergence on one hand and sigma convergence on the other. The data used comes from several sources: the World Bank, Penn World Tables, the ADB and the BCEAO.
In analyzing absolute and conditional convergence, the study uses the Bayesian estimation method to determine the speed of (absolute and conditional) convergence for each country. This study chose not to use the stacked method because it does not enable one to obtain the speed of convergence for each country. This latter method determines a single speed for all the countries. Analysis of sigma convergence is done using a graph. The idea is to represent and analyse the per capita GDP variance ratio. This ratio is the relation between per capita GDP variance at year t and at year 1994. The year 1994 was chosen because it is the year the Union was founded. The results of the study show that there is weak absolute convergence within the Union and that the educational policies, just as the openness policies, could accelerate growth and convergence in these countries.
The study also notes the presence of sigma convergence for the periods 1980–1994 and 2000–2008. Note that the first period is a “before-integration” period and the second an “after-integration” period. For the latter, one can say that the countries are in the process of economic integration. The absence of sigma convergence during the 1994–2000 period does not in any way bring into question the positive impact of integration on sigma convergence. In effect, it is possible that a policy does not produce immediate effects. Generally, there is a time-lag between when a policy is put into place and when the effects of the policy can be felt. That could be the case in this study. Countries often take time to adapt to the new rules and measures, and as a result, the date the treaty comes into effect does not coincide with the practical application of its measures.
The heterogeneity of data sources is a limitation of this study. In addition, there was no data for Guinea-Bissau for the entire study period and was therefore excluded from the analysis of absolute and conditional convergence. Other equally important variables were not integrated into the analysis. These are variables that measure the quality of institutions such as democracy, good governance, property rights protection, etc. Future research could take these aspects into account.
Claude Wetta, Antoine Yerbanga

Chapter 7. The Effects of Credit Constraints on Economic Convergence: The Case of the WAEMU Countries

This study sets out to analyse the effects of a weak financial system on WAEMU country convergence to the global frontier growth rate. To do so, we have used a Schumpeterian growth model with technology transfer that was initially developed by Aghion et al. (Q J Econ 120:173–222, 2005). This brought to light the fact that credit is a constraint that prevents these countries from fully benefiting from technology transfer and pushes them farther away from the growth frontier by considerably slowing their speeds of convergence. Our results have also demonstrated that there is a critical level of private credit and that the WAEMU countries, which record a level of credit lower than this threshold, tend to diverge.
Abdoulaye Diagne, Abdou-Aziz Niang

Chapter 8. Free Movement of Goods in WAEMU and the European Union: Community Law a Comparative Study from the Perspective of Trade

Free movement of goods is one of the four community freedoms defined by the EC and the WAEMU treaties that constitute the four “pillars” of a common market. Articles 4 and 77–81 of the WAEMU treaty are the counterparts of articles 28–37 of the Treaty on the Functioning of the European Union (formerly articles 23–31 of the EC treaty). These two texts stem from the same movement and share the same ambition, that of liberalising trade among the member states in order to establish a principle of free movement of all products with monetary value and therefore likely to be the object of commercial transactions. The free movement of goods is, in effect, a key community freedom. Community freedoms have a daily impact on the lives of the citizens, and no community progress could be made without free movement regimes. They interest both member states and enterprises, which are the economic players. In this contribution, we propose to examine primarily the WAEMU framework for the free movement of goods, both in terms of the legal texts and the practice through the successful experience of the European Union.
Ousmane Bougouma

Regional financing instruments and fighting poverty

Chapter 9. The Role of Cash Transfers from Migrants in Promoting the Financing of Economic Development in WAEMU Countries

This study demonstrates that cash transfers from migrants promote economic growth and that these resources contribute to increasing domestic investment. The fundamental stake of these cash transfers is that these resources are perceived as a new source for financing development. By focussing on the WAEMU countries for the period 1974–2006, our results show that productive investment is a major channel through which cash transfers influence growth. An econometric analysis also shows that cash transfers act de facto as a substitute for financial services in promoting productive investment and, as a result, growth in the zone. This result demonstrates, consequently, that the influence of cash transfers on investments occurs in a shallow financial system marked by limitations in liquidity, notably where there are few deposits and limited access to credit. The main implication is that it is essential to channel cash transfers more towards productive investments, first by boosting the number of migrants using banks, thus enabling the financial system to offer savings products and entrepreneurial loans, and secondly by setting up financial and non-financial support structures. In light of this, the study recommends the creation of a regional diaspora investment support fund that could be responsible for identifying promising migrant projects and could provide financial and technical support in order to improve their entrepreneurial capacity and ability to manage their productive activities.
Ameth Saloum Ndiaye

Chapter 10. Efficiency of Credit That Targets the Poor: Measures and Application of Agricultural Credit in Burkina Faso

Micro-credit has become a frequently used a tool to reduce poverty by targeting the poor through a variety of indicators. The efficiency of this type of micro-credit is not measured in the literature. This study proposes an efficiency index for credit programmes that target the poor, calculated based on the effectiveness of the target indicators. The efficiency index, which is calculated for agricultural credit, measures the percentage of the total envelope that reaches the poor. The results indicate that targeting farming has the potential of enabling agriculture credit to reach at least 89% of the monetarily poor households, with an efficiency index of less than 42%. This eligibility of the poor falls to 13.2% of poor households in 1998 and 22% in 2003 when targeting actual applicants for agricultural loans. Ultimately, agricultural credit reaches fewer than 11% of the monetarily poor households, with an actual efficiency of at most 42%. The large gap between potential and real eligibility indicates the eviction of the poor due to a variety of implicit indicators whose in-depth analysis will allow credit programmes to be better adapted to the target group. Targeting on the basis of other indicators, such as the major grains (e.g. sorghum), small ruminant breeding or the possession of farmland, is effective when it comes to the eligibility of poor households but inefficient in eliminating those who are not poor, which yields an efficiency index of at most 42%, even if the financial administration is effective in transferring the funds to the poor. To reach many more of the poor, agricultural credit still needs to be adapted to the conditions of the poorest, while agrarian reform that would give legal value to land, would offer the poor greater access to credit.
Samuel Tambi Kaboré

Chapter 11. Performance and Effectiveness of the Decentralised Financial System and Poverty Reduction in Niger

Reforms in the financial system have enabled WAEMU member countries to envision models other than the traditional models to assess credit risks and to ensure that credit contracts are respected, thus building trust between individuals who do not meet the requirements set by the classic banking system and financial institutions. This new approach, referred to as the decentralised financial system (DFS), should facilitate participation of the poor in economic activities via a savings and loan system that aims at being financially viable and profitable.
In Niger, this DFS continues to develop and to position itself as a tool to supply financial services to the most disadvantaged populations. As a result, after several years of experimentation with savings and loan micro-projects, it is important to attest on the performance of the microfinance sector and its contribution to economic and social development in Niger. These considerations have led us to raise the following questions: What is the system’s capacity in terms of mobilising resources (collecting savings and refinancing)? Does the DFS have a significant reach in terms of the services offered to its clientele? Is the system able to reach its potential target, that is, the poor?
To answer these questions, our study proposes to analyse the performance and effectiveness of the financial system in Niger. The available data shows that development of the microfinance system is in full swing in Niger, with an increase in the number of Micro-Finance Institutions (MFI), in the volume of credit granted and in jobs created, and an increasing number of beneficiaries, which are primarily women. Despite the relatively high interest rates and usury for very short repayment periods, microfinance in Niger is striving to ensure financial self-sufficiency by developing a portfolio of savings and loan activities that have been increasing every year since 2000.
Despite some obstacles to long-term viability, micro-credit remains a financial possibility that is of vital importance to the poor and therefore is essential for poverty reduction in Niger. To make the DFS more effective, this study recommends targeting the poor and identifying their financial needs but also considering DFS clients not as people looking for charity but really as people who are trying to do business by accessing basic tools (capital and training).
Insa Abary Noufou

Chapter 12. Financing Agriculture and the Food Crisis in Africa: What Role Can Microfinance Play?

In the context of a growing food crisis with more than a billion people suffering from hunger, it is clear how important it is to study optimising the farming sector by increasing the ways it is financed in order to serve a larger number of the poor. The issue is to analyse how microfinance can contribute to improving the financing of farming in order to favour an improvement in the living conditions of poor populations. This financing could be improved and efficiently ensured if microfinance services were innovative and adapted to this purpose. Farm households’ capacities capacities have a dual influence on the poverty-reduction process through their productivity, on one hand, and through distribution of income, on the other. More specifically, we use these facts as the basis to evaluate the impact that the financial sector can have on agricultural productivity and the impact that agricultural productivity can in turn have on poverty. It emerges that the financial sector, having reached a certain stage in its current development, is not contributing to improving productivity but is a key factor that acts positively on reducing poverty. In addition, there is a negative, non-linear relationship between agricultural productivity and poverty. Yet, in view of improving the actions of the financial sector with respect to farmers, one could develop a framework that promotes financial intermediation based on microfinance. As a result, it is necessary to valorise and popularise microfinance actions directed at farmers. The development of adequate and adapted financing through microfinance in the farming sector should be a priority for West African countries in order to enable the latter to experience the positive influence in both the process of improving productivity and in the process of reducing poverty.
Sandra Kendo

Chapter 13. Common External Tariff (CET) and Targeting the Poor in Mali

The WAEMU’s common external tariff (CET) went into effect in January 2000 and is divided into four categories of products with customs duties of 0, 5, 10 and 20%, respectively. This study analyses the “benefits” of this categorisation for the poor, using targeting indicators calculated with the help of data from the Mali 2006 ELIM. For category 0, which is exempt of customs duties, the results indicate that there are proportionally fewer poor people who consume or purchase these products. However, poor consumers benefit more from category 1, made up of basic necessities subject to a 5% customs duty. The targeting is neutral for the products in category 3. The analysis of the percentage of total consumption shows that the poor consume proportionally more goods from category 1, but proportionally fewer goods from categories 0 and 3. The poor in rural areas get more advantages from the reduced duties and taxes on products in categories 0 and 1 when compared with their urban counterparts. The results also show that the poor do not benefit from tax exemptions, with a more marked disadvantage for the rural dwellers than for city dwellers. The key challenge remains to find out how to improve the effects and benefits of the CET in favour of the poor. Other than resolving the difficulties linked to applying the CET and the free movement of goods, improving the pro-poor characteristics of the community tariff structure requires improving the tariff targeting of the poor and the priority allocation of fiscal income obtained in favour of sectors that benefit primarily the poor.
Massa Coulibaly, Balla Keita

Chapter 14. How Does Communication Enrich Integration Policies

When public institutions focus excessively on their survival or on their reproduction, they run the risk of progressively distancing themselves from reality and of not serving the citizens and their communities. The West African Economic and Monetary Union (WAEMU) and the International Development Research Centre (IDRC) took the initiative to encourage discussions focused on the necessary complementarity among three key players in regional integration who until now have ignored each other or, at least, have not understood each other: researchers, decision makers and journalists. This chapter is a retrospective critique of the experience of an encounter among stakeholders coming from different social areas with different approaches and interests and who nevertheless need to cooperate in their everyday professional lives. This chapter draws lessons from this three-way discussion and explores how these players—those who design and implement public policies, researchers and journalists—can invent and lead discussion forums in order to influence policies that are closer to citizens’ reality and expectations and that accompany integration.
Ahmed Barry, Augustin Niango, Kathryn Touré

Chapter 15. Conclusions and Prospects: Creating Wealth through Integration

This chapter summarizes the main findings and conclusions of the seven integration issues addressed in the book. The appraisal of integration efforts within the WAEMU shows both successes and failures. The chapter identifies seven strategic prospects for successful regional integration and for maximising its impact in the UEMOA community. These answer the question of how to create wealth through integration.
Elias T. Ayuk, Samuel T. Kaboré


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