Towards improved competitiveness of the Economies of the West African Economic and Monetary Union
As is well known, a monetary union with a common currency confers on its members the advantage of fixed exchange rate and consequent relative price stability. While these advantages held sway up to the mid-1980s in the case of the seven member countries of the CEA franc zone in West Africa, the vulnerability of the zone to external shocks became manifest from the second half of the 1980s. Fairly persistent overvaluation of the CEA franc over time had weakened the competitiveness of the export sector leading to several economic problems including domestic and external debt arrears, capital flight, and negative growth rate. Efforts to correct the distortions in the economies witnessed the implementation of stabilization and structural adjustment measures successively. However, the poor performance record led to a decisive fifty per cent devaluation of the CFA franc in January 1994. It was believed that this action, along with complementary monetary, fiscal, and structural reform measures in each member country, and the transformation to an economic and monetary union, would restore competitiveness and self-sustaining growth. Accordingly, a general post-devaluation assessment which was undertaken showed that in many countries, inflation moderated, real GDP grew slightly, export competitiveness was restored while ‘flight capital returned. The study concludes that despite the gains made by the WAEMU countries, the challenges ahead need to be well focussed such as a greater drive for improved government revenue, need to return to international creditworthiness, and the need to move towards market-based instruments of monetary control.
Akinnifesi, E.U. (1995). Towards Improved Competitiveness of the Economies of the West African Economic and Monetary Union. CBN Occasional Paper, No. 13, 1 - 45.