Economic Integration in Central and West Africa
Author:
Bahram Nowzad
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Publication Date:
01 Jan 1969
eISBN:
9781451956245
Language:
English
Keywords:
SP; budget; government; member country; balance of payments; central bank; customs union; economic development; Exports; Tariffs; Customs unions
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From the Foreword to the first issue: “Among the responsibilities of the International Monetary Fund, as set forth in the Articles of Agreement, is the obligation to ‘act as a center for the collection and exchange of information on monetary and financial problems,’ and thereby to facilitate ‘the preparation of studies designed to assist members in developing policies which further the purposes of the Fund.’ The publications of the Fund are one way in which this responsibility is discharged. “Through the publication of Staff Papers, the Fund is making available some of the work of members of its staff. The Fund believes that these papers will be found helpful by government officials, by professional economists, and by others concerned with monetary and financial problems. Much of what is now presented is quite provisional. On some international monetary problems, final and definitive views are scarcely to be expected in the near future, and several alternative, or even conflicting, approaches may profitably be explored. The views presented in these papers are not, therefore, to be interpreted as necessarily indicating the position of the Executive Board or of the officials of the Fund.” The authors of the papers in this issue have received considerable assistance from their colleagues on the staff of the Fund. This general statement of indebtedness may be accepted in place of a detailed list of acknowledgments. Subscription: US$6.00 a volume or the approximate equivalent in the currencies of most countries. Three numbers constitute a volume. Single copies may be purchased at $2.50. Special rate to university libraries, faculty members, and students: $3.00 a volume; $1.00 a single copy. Subscriptions and orders should be sent to: THE SECRETARY International Monetary Fund 19th and H Streets, N.W. Washington, D. C. 20431

Abstract

From the Foreword to the first issue: “Among the responsibilities of the International Monetary Fund, as set forth in the Articles of Agreement, is the obligation to ‘act as a center for the collection and exchange of information on monetary and financial problems,’ and thereby to facilitate ‘the preparation of studies designed to assist members in developing policies which further the purposes of the Fund.’ The publications of the Fund are one way in which this responsibility is discharged. “Through the publication of Staff Papers, the Fund is making available some of the work of members of its staff. The Fund believes that these papers will be found helpful by government officials, by professional economists, and by others concerned with monetary and financial problems. Much of what is now presented is quite provisional. On some international monetary problems, final and definitive views are scarcely to be expected in the near future, and several alternative, or even conflicting, approaches may profitably be explored. The views presented in these papers are not, therefore, to be interpreted as necessarily indicating the position of the Executive Board or of the officials of the Fund.” The authors of the papers in this issue have received considerable assistance from their colleagues on the staff of the Fund. This general statement of indebtedness may be accepted in place of a detailed list of acknowledgments. Subscription: US$6.00 a volume or the approximate equivalent in the currencies of most countries. Three numbers constitute a volume. Single copies may be purchased at $2.50. Special rate to university libraries, faculty members, and students: $3.00 a volume; $1.00 a single copy. Subscriptions and orders should be sent to: THE SECRETARY International Monetary Fund 19th and H Streets, N.W. Washington, D. C. 20431

In recent years economic integration among developing countries, in its various forms, has become one of the more topical issues in the field of economic development, and the subject has increasingly attracted the attention of policymakers in the developing countries, as well as that of international organizations and various governments among developed countries. Progress toward actual integration has been slight but a number of organizations have been established, and numerous proposals for the further promotion of integration among various groups of developing countries—in particular for the creation of customs and payments unions—have been put forward.1

The interest in economic integration among developing countries is due to several factors, which to some extent are interrelated. First, economic integration has come to be considered as an important instrument in the problems of economic development. This is reflected in Resolution 23 (II) adopted at the second session of the United Nations Conference on Trade and Development (New Delhi, February-March 1968): “The countries participating in the second United Nations Conference on Trade and Development… reaffirm that trade expansion, economic co-operation and integration among developing countries is an important element of an international development strategy and would make an essential contribution toward their economic development.” 2 Specifically, a major justification for integration is seen to be the difficulties encountered by developing countries in their exports, the so-called export frustration. Unfavorable terms of trade, protectionist policies in some importing countries, uncertainty of overseas markets, commodity price instability, export subsidies in other countries, the development of synthetics, etc., make it important for the developing countries to develop additional markets for their products. However, the achievement of independence by numerous countries in recent years, especially in Africa, and the consequent fragmentation of previous colonial areas into a large number of small, often extremely small, markets has compounded the difficulties mentioned above, making it difficult to “go it alone” on the basis of national markets. Thus, the answer is seen to be in a greatly expanded regional market that would accommodate increases in production and also allow for greater import substitution. An enlarged regional market would mean enhanced opportunities for investment, a better utilization and allocation of resources, internal and external economies of scale and increased efficiency resulting from specialization, the development of new industries, greater diversification of the domestic and the export sectors and a reduction in economic dependence and vulnerability, a stronger bargaining position, and the industrial transformation of the economies of the member nations.

Furthermore, the postwar progress toward integration in Europe has made a considerable impression on many countries, and the European Payments Union and the European Economic Community (EEC) are frequently, if uncritically, cited as models of integration in payments and trade, respectively, and their roles in the economic recovery and progress of postwar Europe underscored. This has encouraged, in some quarters, the idea of a simple and causal relationship between integration and economic recovery or growth.

In summary, economic integration is seen as a method of providing a more viable basis for economic growth and, more especially, for industrialization, while maintaining the national independence of the countries concerned.3 It is also recognized, however, that integration will not provide a panacea for the problems of economic development. For example, in the arguments favoring free trade among developing countries within a system of high external tariffs against imports from third countries, it is realized that many regions are economically too small to induce industrial investments even in a highly protected market. There is, furthermore, no suggestion that the developing countries can dispense with their export markets and depend solely on intraregional trade. As regards the procedural and institutional aspects of integration, it is recognized that such a process would face serious obstacles and difficulties, notably, political rivalries and nationalism, obstacles of a natural and topographical character, difficulties connected with the variance in the level of development reached by the various countries, and the possibility of excessive concentrations of investment in particular areas and consequential disparities in the development of different regions (i.e., the process of polarization).

This paper attempts to analyze the case for economic integration in Central and West Africa and the problems and issues that arise in connection with this. A brief description of existing institutions in this region is also included.

I. The Background to Integration in Central and West Africa 4

The General Case for Integration in Central and West Africa

On a theoretical basis there might appear to be little to justify economic integration efforts in Central and West Africa. The trade diversion effects could well outweigh the trade creation effects;5 the countries, for the most part, cannot be classed in Viner’s category of “sizable countries practicing substantial protection of substantially similar industries” (see Appendix II); a high proportion of the foreign trade of these countries is not with a potential union partner. However, a strong case for economic integration in Central and West Africa can be argued on other grounds. One frequently adduced is the extremely small size of most of the national markets (see Table 1), which constitutes a serious constraint on industrial development and economic growth. Thus it is argued that the resources for industrial development exist, but that the fragmentation of the region into narrow domestic markets inhibits their development and use. Owing to technological and economic considerations, many of the region’s resources can be exploited only on the basis of large-scale production. Existing domestic markets, with some exceptions, would allow only the establishment of suboptimal industries, and the adaptation of technology to small markets, where possible, would be costly.

Table 1.

Selected Countries: Population and Gross National Product (gnp), 1965

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Source: International Bank for Reconstruction and Development, World Bank Atlas of Per Capita Product and Population, 1967.

The limited size of the market in the great majority of the countries of this region is evident from Table 1, which sets out estimates of the population and of the per capita and total gross national product (GNP) of the countries concerned compared with those of other countries, both developed and developing. While the data are subject to a wide margin of error and represent rough approximations, they indicate that, with the exception of Nigeria and the Democratic Republic of Congo, the populations of the countries are generally small and that in all the countries per capita GNP is low. On the basis of the figures presented in the table, the average population is 6.5 million6 (or, excluding Nigeria and the Democratic Republic of Congo, almost 3.0 million), and the weighted average per capita GNP is about US$95.

Various factors can be taken into account in assessing the size of the market of a given economy (such as area, population and its distribution, and income and its distribution). However, the two basic factors of population and GNP are sufficient to show that, at least prima facie, the fragmented markets in Central and West Africa do not provide a solid basis for industrial development and to suggest that integration of the various markets would be important in creating a potentially more viable market in the region. The problem of size is compounded if certain other factors are taken into account. First, the level of urbanization, though increasing, is low, and the population in many of the countries is spread over a large area (see Table 2). Second, transport and communications facilities are inadequate, and many areas contain semi-isolated communities with little economic cohesion. Thus, the national markets of the region are more fragmented than might appear at first sight.

Table 2.

Central and West Africa: Area and Population Density, 1964

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Source: United Nations, Economic Commission for Africa, Statistical Bulletin for Africa, 1967.

A question often raised in connection with market size is that if relative smallness is a constraint to economic development what is the explanation for the relatively high degree of development attained by several countries that are relatively small in land area and in population (such as Switzerland, Belgium, the Netherlands, New Zealand, Sweden)? Among the answers advanced by proponents of integration among developing countries is that these other countries developed in the late nineteenth and early twentieth centuries when international trade was relatively free, and that, in establishing a new industry, a country could include the markets abroad as part of the market for the industry in question. There were, however, other factors involved. Many of the smaller countries benefited from their proximity to larger countries, with considerable economic intercourse and similar social structures. A second factor was technological: economies of scale did not mean quite the same then as they do now—the level of technical progress was much lower, and the minimum efficient size of many production units was smaller. Furthermore, the technological gap between various countries was narrower and easier to overcome.

Such comparisons are of questionable value, however, as numerous other factors outside the scope of this paper have been important to the economic growth of a particular country, for example, the importance to New Zealand of the development of refrigerated ships. The essential question is whether, under present conditions, the small size of national markets is an impediment to more rapid growth and whether integration would help to provide a solution. Enlargement of a national market and the enhancement of investment opportunities are expected to have two major effects: they would allow the utilization of unexploited resources and a better use of existing resources and capacity by making possible economies of scale, a better division of labor, and thus more efficient production. With regard to the utilization of available resources, some comments are made in the next section. As to the better use of present capacity, Table 3 gives an illustration of the extent of the problem at present. If they could sell to a greatly enlarged market, many existing industries could operate closer to capacity, and the dangers of future duplication of industries and of excess capacity in the region might be lessened appreciably. Besides these possible benefits of economic integration, other advantages have been claimed—notably, that the countries involved are strengthened politically and, as a group, are in a stronger position to negotiate with other countries and groups.

Table 3.

Central and West africa: Industrial Capacity and Output in Selected Industries1

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Source: United Nations, Economic and Social Council, Problems of Plan Implementation, E/AC.54/L.26 (Addis Ababa, 1968).

All the industries with the exception of the bicycle and motorcycle assembly plants are situated in Central African countries; however, available information suggests that a similar situation exists in West Africa for a wide range of industries.

Annual.

1965-66 for most products, 1965 for bicycles and motorcycles.

Bottles, sacks, piping, tableware, and apparel.

Economic structure and resources

Although there are considerable differences of ecology, climate, and resources among them, the general economic structure of the countries of Central and West Africa is similar to that of many other less developed countries. Agriculture—much of it comprising subsistence farming—predominates in the region, although in some countries mining accounts for an equal or larger portion of the estimated national product, and in some other countries its relative importance is growing. The industrial sectors are small, and a substantial part of existing manufacturing activities are concerned with food processing. Commerce is generally the second or third most important sector, while other services constitute a relatively small sector.

In the absence of a detailed survey of the available resources of the area and of feasibility studies for their economic development, it is speculative whether the resource structure of the countries of the region is such as to provide possibilities for the development of industries on the assumption that there will be a larger market. An extensive general study, however, has been carried out by the United Nations Economic Commission for Africa (ECA),7 embracing surveys that are concerned with industrial development; these studies indicate that, although extensive surveying and prospecting still remain to be done, the region is endowed with sufficient resources to make possible a considerable industrial development. The establishment of many industries of strategic importance to economic development is technically feasible. However, although in some instances small-scale industries could be established within the national markets of individual countries, many of the more important industries are large scale, with a minimum size which would be considerably beyond the scope of national markets and which would therefore be feasible only if the output could be sold to other markets.

The above-mentioned study makes an industry-by-industry appraisal of the possibilities of major industrial development in the region. For example, it comes to the conclusion that there are possibilities in the following industries: iron and steel, aluminum, other metal products, chemicals, and fertilizers.8 However, the establishment, on a regional basis, of the industries studied would not conflict with the development of small and medium-sized industries, some of which could operate on the basis of national markets. Examples of such industries are those that produce furniture, plywood, and glass containers.

The above-mentioned industries provide some indication of the areas in which industrial development on a regional basis may be possible. Expansion in certain other sectors would also be important and, in certain cases, a prerequisite. The two main sectors are energy and transport. With regard to energy, the region is well endowed in resources, but its transport facilities are inadequate and comprise a major obstacle to economic integration. The existing transport network seems to have been based mainly on military, political, or administrative considerations, or to have been developed primarily for promoting trade between the (former) colonies and the industrial world.9 An improvement and expansion of the existing transport network, especially as regards new transport links within the region, would be vital to the economic integration of the area.

Foreign trade

Foreign trade plays an important role in the economies of Central and West Africa, but it is not possible to generalize about its significance to their economic development. National income data, where available, are inadequate: the export/GNP ratio, for example, varies from less than 10 per cent to more than 50 per cent, and the ratios for individual countries vary considerably according to the period selected. The above-mentioned ECA report on Central Africa found ratios of between 15.2 per cent and 42.0 per cent. Another survey, using the latest available figures (mostly for 1965), found ratios of between 5 per cent and 75 per cent, taking into account Central as well as West African countries.

Exports are predominantly composed of a limited range of agricultural and mineral products, while imports comprise a wide range of consumer goods, capital equipment, and food. Of particular note is the narrow range of the export sector. Table 4 shows the relative importance of the major export products as a percentage of total exports, using 1965 data; in most instances two or three products account for 60-90 per cent of total exports.

Table 4.

Central and West Africa: Major Exports as a Percentage of Total Exports1

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Source: Data from national trade returns.

The purpose of this table is to give only a general illustration of the commodity structure of the value of exports. Most figures concern 1965; different percentages would be obtained by taking other years. Also, the figures represent recorded trade only.

A third feature is the highly skewed direction of trade. It can be seen from Table 5 that in most cases the major source of imports and the main market for exports continue to be the former metropolitan country, mostly France or the United Kingdom. This is true for all countries except, on the export side, Congo (Brazzaville), the Democratic Republic of Congo, Guinea, Liberia, Mali, and Upper Volta, and, on the import side, the Democratic Republic of Congo and Guinea. Some of those countries have established new trading links and found new trading partners. For example, Guinea’s major trading partner is now the United States, while Ghana, Guinea, and Mali have established trade ties with the state-trading countries of Eastern Europe.

Table 5.

Central and West Africa: Foreign TRADE, 1965

(In millions of U.S. dollars)

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Source: International Monetary Fund and International Bank for Reconstruction and Development, Direction of Trade, Annual 1961-65 (Washington).

Includes ships registered under Liberian flag.

1964 figures.

Another feature of the region’s trade structure is the contrast between the strong trade links with the former metropolitan country on the one hand and the weak intraregional trade links on the other. With few exceptions, the proportion of exports to, and imports from, other African countries would appear to be rather small. For example, intra-regional trade among the members of the Central African Customs and Economic Union10 accounts for about 5 per cent of their total trade. Thus, integration in Central and West Africa would be starting from what might almost be described as a position of nontrade. It is to be noted, however, that intraregional trade is probably more important than the statistics show, because a substantial amount goes unrecorded. The combination of uncontrollable frontiers and import taxes encourages contraband trade.

The foregoing data tend to strengthen the case for economic integration in the area set forth at the beginning of this section. On the one hand, preliminary studies have shown the area to be relatively well endowed in a wide range of resources, the economic exploitation of many of which is not profitable on the basis of sales to domestic markets. On the other hand, it has been shown that most of the countries are mainly dependent on external trade, characterized by a narrow range of exports to one or a few countries. The intraregional trade is, with few exceptions, marginal.

The a priori argument for integration which follows is that the formation of a customs union would contribute to a better utilization of resources and an increase in intraregional trade.

II. Existing Regional Arrangements

There is no dearth of regional and subregional institutions in Africa, many of which deal with the economic relations among the countries of the continent. The African organizations, inspired by a desire to cooperate on a regional or continental basis, are supplemented by other arrangements linking certain groups of countries to the former colonial power.11

In Central and West Africa there are four organizations devoted to economic integration—the Central African Customs and Economic Union (Union Douanière et Economique de l’Afrique Centrale, or UDEAC), thé Union of Central African States (Union des Etats de l’Afrique Centrale, or UEAC), the West African Customs Union (Union Douanière des Etats de l’Afrique de l’Ouest, or UDEAO), and thé Economie Community of West Africa (ECWA). Two other organizations, concerned with monetary matters, have a bearing on integration, namely, the two common central banks of Central Africa and West Africa, respectively. Finally, most countries of the region are jointly linked to the EEC through the Yaounde Convention. These organizations are briefly described below.

The Central African Customs and Economic Union

The UDEAC was created by a treaty signed in December 1964 at Brazzaville, and became effective on January 1, 1966. Its origins go back to June 1959 when the Central African Republic, Chad, Congo (Brazzaville), and Gabon signed a treaty establishing the Equatorial Customs Union (Union Douaniére Equatoriale, or UDE). The purpose of the treaty was to maintain and strengthen ties among these four countries, all previously part of the Federation of French Equatorial Africa. The treaty provided for the free movement of goods and capital among member countries, the establishment of a common external tariff, the coordination of fiscal and investment policies, the introduction of the single tax (taxe unique) system, and the creation of a Solidarity Fund. With reference to the third of the above goals, in 1960 the member countries agreed not to change unilaterally the basis of certain specified taxes (those on industrial and commercial profits and dividends and the internal turnover tax) and to modify their income tax rates only after consultation with other member countries. Moreover, the member countries adopted almost identical investment codes and introduced the taxe unique system. Under this system, the exporting country levies a production tax on goods exported to the regional market (exempting the basic materials used from any tax or duty). This tax is levied at the time the goods leave the factory and is usually lower than the import duty for the same products. The importing country does not levy any tax or duty on such imports, but receives from the exporting country a proportion of the proceeds of the taxe unique. Such receipts are in proportion to the share of the production consumed in the importing country. In essence, the effect of this tax is to compensate the importing country for the tariff revenue lost by importing from a partner country.

In mid-1961 the Republic of Cameroon (now East Cameroon) became an associate member of the UDE by signing a Convention of Association. While the Convention provided for the adoption by Cameroon of most of the integration measures in effect among the original members, it did not call for a total harmonization of customs duties between Cameroon and the other members.

With the transformation of the UDE into the UDEAC in January 1966, the way was opened for a broader economic union. The new treaty goes some way beyond the original one in providing for the unification of all import taxation and the customs nomenclature, the establishment of common customs offices throughout the UDEAC area, the unification of investment codes, a further harmonization of the internal tax system, and the harmonization of development plans, industrial projects, and transport policies. The taxe unique system and the Solidarity Fund are maintained.

Several steps toward economic integration have been taken, and others are in progress. A complete unification of most import taxes (duties and turnover taxes) has been achieved; a common tariff applies to all imports entering the UDEAC countries consisting of (1) duties for commodities originating in countries other than the original members of the Common Organization of African and Malagasy States and the EEC, (2) fiscal taxes levied on imports from any country, and (3) a turnover tax at the rate of 10 per cent of the value of imported goods plus import taxes;12 goods circulating within the UDEAC, on the other hand, are exempt from any import duty, except where there is a differential in the rate of the supplementary tax between the country of entry and the country of final consumption; the customs nomenclature has been fully standardized (on the basis of the Brussels nomenclature); common customs offices have been established throughout the union; the sharing and settlement of the proceeds of customs duties takes place every three months; the Solidarity Fund is in operation and a percentage of import duties and taxes levied on all imports into the UDEAC is credited, for eventual transfer to member countries; transfers under the taxe unique system described above are being made; a union-wide investment code has been adopted;13 and agreement has been reached for the location of one industry within the UDEAC so that competing industries are not established in other member countries. The latter concerns the establishment of a refinery at Port Gentil in Gabon.14 Other projects (e.g., a cement factory and a bottle factory) are under consideration.

The UDEAC suffered a setback in April 1968 when its two landlocked members, the Central African Republic and Chad, announced their intention to leave the Union and to join together with the Democratic Republic of Congo to form the Union of Central African States.15 It is reported that this move was prompted by dissatisfaction over the distribution of benefits, in particular the distribution of industrial projects—the establishment of a refinery in Gabon and the favoring of Cameroon as a likely site for the location of a bottle factory—which led the authorities in the Central African Republic and Chad to believe that coastal countries would reap most of the benefits in terms of industrial projects. Moreover, the two countries were unhappy about the operation of the taxe unique system and the distribution from the Solidarity Fund.

Although some progress has been achieved and an institutional framework has been set up for further integration, it is difficult to make an over-all assessment of the UDEAC. The absence of adequate data prevents a calculation of the increase in intraregional trade resulting from the trade liberalization. While it is probable that, in percentage terms, the volume of this trade has increased, its relation to the total trade of the member countries is still small in most instances. In the all-important sphere of the harmonization of industrial projects and development plans there is only one concrete example. In other fields (e.g., transport policies) the provisions for harmonization largely have yet to be implemented.

The Union of Central African States

A protocol for the United States of Central Africa was signed in Bangui in February 1968 by the Governments of the Central African Republic, Chad, and the Democratic Republic of Congo. In April 1968, a charter was signed in Fort Lamy, and the name of the organization was changed to the Union of Central African States. Other countries may join the Union, and the possibility of eventual membership of Congo (Brazzaville), Rwanda, and Burundi has been mentioned.

The charter calls for the gradual establishment of a common market, and stresses the “equitable distribution of industrialization projects.” It also calls for the harmonization of industrialization, development, transport, and telecommunications policies, with a view to promoting the balanced growth and the diversification of the economies of the member countries.

Other provisions include the adoption of an investment code (Code Cadre) favoring the landlocked regions and designed to help to overcome their natural disadvantages; the creation of a Compensation and Investment Fund; the levying of taxes designed to promote the consumption of goods produced within the Union; the creation of an Investment Bank; and cooperation in the areas of education, security, hygiene, and science.

There is little information on the operations of the UEAC to date. Judging from the provisions of the charter, it is evident that the Union has stressed an equitable distribution of benefits, referring specifically to landlocked regions. However, in the light of the Central African Republic’s decision to rejoin the UDEAC, the future of the UEAC is not clear.

The West African Customs Union

The UDEAO was established by a treaty signed in June 1966, which became effective in mid-December of that year. The new arrangements replaced an earlier customs union established in 1959 by Dahomey, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta. As in the UDEAC, the aim of the treaty was to preserve the intraregional links existing prior to independence. The original treaty called for an abolition of duties on intraregional trade and the distribution of the proceeds from common duties levied on imports from third countries.

The 1959 treaty was never fully implemented. Disagreements arose regarding the redistribution scheme, and customs barriers on regional trade were established by most countries. Unilateral action in other fields, in addition to the disagreements just mentioned, slowly jeopardized the union. The new treaty provides for a common external tariff. Intraregional trade is subject to a duty equivalent to 50 per cent of the duties and taxes on imports from third countries. This tax may be increased to 70 per cent on products of existing industries, for protective purposes.

While the countries of the UDEAO may have moved closer together in certain other spheres (e.g., monetary policy), their efforts at establishing a customs union must be judged as relatively ineffective to date. In trade, there is no free movement of goods among the countries of the region, and there are no provisions for a harmonization of investment decisions, industrial plans, etc.

The Economic Community of West Africa

The Articles of Agreement for the establishment of this Community were signed in May 1967 by Dahomey, Ghana, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta. An Interim Council of Ministers and a provisional secretariat were set up, and a first draft treaty was considered by the Council in November 1967. The ultimate objective of this Community is to bring about a common market among the members. The Interim Council meanwhile has put forward proposals for the harmonization and coordination of policies concerning agricultural production, industrialization, development planning, trade liberalization, the definition and financing of joint projects, and education.

While it is too early to assess the contribution of the Economic Community of West Africa to integration in the region, it is to be noted that it constitutes an attempt, for the first time in this region, at economic cooperation and integration cutting across divisions of language, history, and existing affiliations and institutions. Appendix I compares the basic economic indicators of the ECWA with those of other groups in Central and West Africa. Despite the margin of errors in the data, it is evident that the ECWA has a much larger potential market and more widespread trading links than the other groupings.

The Common Central Banks, Bceao and Bceaec16

The Central Bank of West African States (Banque Centrale des Etats de I’Afrique de I’Ouest—BCEAO) and the Central Bank of Equatorial Africa and Cameroon (Banque Centrale des Etats de I’Afrique Equatoriale et du Cameroun—BCEAEC) are two of the issuing banks within the CFA franc system.17 The basic elements of this system are the common central banks, the circulation of a common currency within the area of each bank of issue, and the pooling of foreign exchange reserves, giving countries in balance of payments difficulties access to the common pool. Furthermore, there is a relatively uniform application of credit policy, common rules for government access to central bank credit, and similar exchange and trade controls.

The BCEAO was created by an agreement signed in May 1962 by Dahomey, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta. A parallel agreement signed by these countries with France guaranteed the convertibility of the CFA franc18 (issued by the BCEAO) into French francs and provided for the external reserves of the countries to be kept in an Operations Account maintained by the BCEAO at the French Treasury. Subsequently Mali left the BCEAO, setting up its own central bank, and Togo joined the organization.

The seven members participate equally in the capital of the BCEAO (CFAF 2,800 million). The Bank is managed by a Board on which the member countries and France are represented (two directors each, and seven directors, respectively). The policy decisions of the Board are implemented by the national Monetary Committees, of which there is one in each country.

Transfers between the member countries and France are permitted freely. As mentioned above, the external reserves are pooled in an Operations Account with the French Treasury. Credit balances on this account receive interest, and debit balances are charged interest. There are also special provisions to deal with a situation where the Operations Account is seriously drawn down. Finally, there are provisions for borrowing by the governments and domestic banks from the BCEAO.

The BCEAEC is basically the same as the Equatorial Africa and Cameroon Issue Institution (Institut d’Emission de I’Afrique Equatoriale Française et du Cameroun) created in 1955 by Cameroon, the Central African Republic, Chad, Congo (Brazzaville), and Gabon. The name was changed to BCEAEC in 1959. In most basic aspects the BCEAEC is similar to the BCEAO: the Bank is administered by a Board (eight directors from France, four from Cameroon, and one from each of the other members); there are Monetary Committees in each country, with wide powers pertaining to monetary and credit policy; the BCEAEC has exclusive right of issue and its external reserves are posted in an Operations Account with the French Treasury; and free convertibility of the CFA franc into French francs is guaranteed.

The BCEAO and the BCEAEC have been of considerable value to their member countries. They have been a vehicle for monetary coordination and stability and for exchange rate stability through the maintenance of a common currency and the pooling of reserves with free convertibility into a major currency.

The main contribution of the CFA system to integration is that it removes one of the major problems that may arise in the formation of a common market. Integration among a group of countries is difficult if some members of that group have substantially less stable economies than others in the group. The stability of monetary conditions and the similarity of policies under the CFA system facilitate moving toward economic integration.

Special Links with the EEC

The more obvious advantages of special links among a group of developing countries and a number of developed countries may embrace the preferential treatment accorded to the exports of the less developed group in the markets of the developed group; the provision of financial aid and technical assistance; the attraction of private investment from the developed to the developing group; and the less direct advantages that result from close cooperation between the two groups on a range of other matters. The more obvious disadvantages are the diversion of imports from possibly cheaper sources to producers within the associated group arising from mutual preferential treatment; the discrimination against other developing countries; and the obstacles which such special arrangements present with regard to developing countries that wish to cooperate or to establish a union with other developing countries.

The association of the 18 African countries19 with the EEC dates back to 1958 when the EEC was established. The African countries were then either colonies or dependencies of one or another member country of the EEC. The first Convention of Association was concluded in that year to cover a period of five years. During that period the EEC, acting through the European Development Fund (Fonds Européen de Développement, or FED) provided some $581 million in aid to the 18 associated countries. About one half of that sum was spent on basic infrastructural projects and one fourth on the modernization of rural areas. There were also expenditures on education, health, technical training, town planning, and economic and technical studies.

Following independence, the associated countries entered into new negotiations with the EEC, leading up to the signing of a new Convention at Yaounde, Cameroon, in June 1963, covering the period June 1964-May 1969. Under the Yaounde Convention the EEC was to provide a much greater volume of assistance ($730 million, against $581 million—an increase of about 40 per cent); the aid was to take a greater variety of forms and be used for a wider range of tasks, and the emphasis on technical assistance would be enhanced. Moreover, the European Investment Bank, which hitherto had confined its activities to the EEC member countries, was to extend loans (sometimes at special rates) to the associated countries.20

All but $110 million of the assistance under the Yaoundé Convention was to be made available in the form of grants. Most of the aid was to be devoted to increasing the output of the countries, technical aid for investment projects, and technical cooperation; the remainder was for infrastructure and diversification. The assistance may be classified as follows: (1) economic and social investment (infrastructure, development of new crops and industries, technical assistance); (2) technical cooperation (mainly training programs); (3) price stabilization (credits to stabilization funds in times of recession); (4) diversification (the provision of $230 million in aid to the adaptation of products to world markets and to the extension of the range of products); (5) emergency measures (a reserve fund for assisting associated countries stricken by natural disaster).

With regard to trade relations, the Yaoundé Convention aims at the ultimate establishment of a nondiscriminatory free trade area between the EEC members and the associated countries. All customs and quantitative restrictions will be abolished, although the associated countries have the specific right to retain old tariffs and quotas, or to create new ones, for the purpose of protecting infant industries. The preferential treatment accorded by France to certain African countries is to be ended, and the exports of all the associated countries to the EEC will come under the shelter of the EEC’s common external tariff.21 By contrast, the associated countries have no obligation to institute a common external tariff.

Considerable progress has been made toward the establishment of a free trade area between the EEC and the associated territories. Tariffs on imports into the EEC were eliminated on July 1, 1968, and customs tariffs on exports from the EEC to the associated territories have been removed. In the matter of quantitative restrictions, with a few exceptions all quota restrictions on imports into the EEC have been removed, and the quotas on imports into the associated countries have been fully liberalized on most items from the EEC.

In view of the establishment of the ECWA, mention should also be made of the arrangements between Nigeria and the EEC. Nigeria concluded an Association Agreement in July 1966 by virtue of which most of Nigeria’s exports will, when the Agreement is ratified, enjoy free entry into the EEC; the exceptions are peanut oil, palm oil, cocoa beans, and plywood, for which duty-free quotas will be established each year. In return, Nigeria will grant preferences to 26 products from the EEC, although restrictions may be maintained for budgetary purposes or to protect infant industries. Nigeria will not receive aid from the FED. There are other aspects relating to rights of establishment of businesses, and to current payments. It has been estimated that the trade arrangements affect a relatively small percentage of the trade between Nigeria and the EEC, and thus the importance of the Association Agreement lies more in the precedent that it sets.

In essence the Yaoundé Convention provides a system of mutual tariff preferences, giving the associated countries a privileged access to one of the world’s largest markets, in return for the preferential access they grant to the EEC member countries, while reserving for them the right to impose restrictions for protective purposes against imports from that market. Moreover, it makes available to them a large volume of economic and technical aid, most of it in the form of grants.

In the aid provisions of the Agreement there is emphasis on the primary sectors, seemingly based on the principle of comparative advantage. Much of the technical assistance to production schemes is designed to raise output of primary products, diversify crops, adapt traditional exports to world markets, and develop industries for the processing of primary products. However, considerable sums are to be spent on projects that will benefit industry directly or indirectly. The large expenditures on infrastructural facilities, education, and technical training are in this category. There is no provision in the treaty limiting the economic assistance to nonindustrial projects: Article 15 explains the role of the EEC as “participating in measures calculated to promote the economic and social development of the Associated States.” Moreover, Article 17 refers to aid being made available to production schemes of general interest and for production schemes providing “normal” financial returns. Thus, although much of the assistance may in effect go to projects concerned with agriculture, the share going directly or indirectly to industry cannot be disregarded.

The Yaoundé Convention expires in May 1969, and thus the present arrangements, and the benefits bestowed by them, cannot be regarded as permanent. However, it seems likely that the Convention will be renewed for a further period.

III. Issues and Problems

Given that a seemingly plausible case can be made for economic integration in Central and West Africa, this section deals with some of the related main issues and problems. The issues that arise from, and the difficulties that beset, the creation and operation of a viable regional economic community are numerous and, in varying degree, confront all developing countries attempting integration. Most of these issues and problems cannot be considered in the abstract: they must be related to the particular countries, policies, and institutions in question, in the light of prevailing conditions and the choices and resources available to the region.

Cooperation

Integration inevitably involves difficult issues in harmonizing sectional and domestic interests with those of the regional community. For these issues to be resolved and for action that signals some merging of the prerogatives of national sovereignty, steady political support is a necessity.

The existence, prior to the creation of an integrated community, of certain common institutions for cooperation and for harmonization of economic policies may tend to mitigate some of the difficulties. Most of the countries of Central and West Africa have a common past, and they already have several common institutions, such as the two common central banks, based on preindependence ties. Moreover, all but four of the countries in question have a common interest as associated members of the EEC. Thus, although it may be asserted that the habit of cooperation in this region has been established and joint efforts toward an economic community consequently made easier, it remains to be seen whether the countries in question, having achieved political independence in the recent past, will be ready to give up their national sovereignty to any regional authority to the extent necessary for successful and lasting economic integration.

Size and composition

Given the propensity to cooperate, the size and composition of the union to be created must be determined. Any consideration of the desirable size of a union must take into account the fact that the larger the size, the greater will be some of the problems arising from integration. In particular, the risk of certain areas of the union remaining relatively undeveloped will be higher. In Central and West Africa the present divisions and groupings are based on preindependence links, which, in turn, were a result of historical factors. As mentioned above, the economies of most of these countries are heavily oriented toward the EEC, and in particular toward France. The problem turns on choosing between existing organizations as a basis for further integration, with the prospect of expanding these organizations, or of establishing new organizations, on the grounds that the present divisions are not necessarily based on rational economic considerations. For example, one of the striking factors about present groupings in Central and West Africa is that two of the economically most important countries of the region, Nigeria and Ghana, are not parties to the existing economic organizations, whereas each is surrounded by countries belonging to these organizations. It might be assumed that any economic integration in the area should include these countries. The logic of the above seems to be reflected in the efforts under way to initiate a new union in the area, i.e., the ECWA, discussed earlier.

Scope and strategy

The scope and strategy of integration constitute other points of cardinal importance: in other words, What aspects should integration cover and how should it be brought about? Several mutually reinforcing avenues for integration are open to developing countries. The most obvious one is trade liberalization, which is also perhaps the most readily accessible, as experience has shown. Agreement has to be reached concerning commodities to be liberalized, the speed of liberalization, the basis for liberalization (i.e., whether a selective commodity-by-commodity approach or a comprehensive one), the level of the common external tariff, etc. Agreement on these matters is probably easier to reach than agreement in some other spheres, discussed below. In the Central and West African regions a considerable degree of trade liberalization has already been achieved, especially among UDEAC countries where goods are traded free from tariff duties. There seems to be room for further liberalization of intraregional trade in Central and West Africa, especially if new and larger organizations are created which go beyond the present divisions. Trade liberalization is likely to increase the presently low level of intraregional trade. Given the structure and composition of the external trade of the countries of the area, however, trade liberalization alone will have a limited immediate impact. Many of the import needs of the countries of the region for the foreseeable future cannot be supplied by other regional partners, and many of the export products will continue to rely on markets outside the region. In sum, trade liberalization by itself is likely to help to raise the volume of trade in presently traded commodities and may also encourage trade in new commodities; this may stimulate the development of new industries and lead to a better utilization of present industrial capacity. However, larger benefits will be in prospect if trade liberalization is coupled with the harmonization of development policies, especially industrial policies.

The coordination of development policies covers many aspects. There is, first, cooperation in development planning, implying the coordination of national economic plans or planning on a regional level. This form of cooperation at the general policy level is concerned with such questions as the basic objectives of development, the broad breakdown of expenditures, and the sources of funds. Most countries in Central and West Africa have economic plans. These plans at present are essentially no more than general guides for desirable projects.

Of more importance and potentially greater benefit is harmonization at the industrial and project level. Cooperation at this level concerns the choice of industries (producing intermediate or final goods for domestic consumption or for export) and the location of industries (in which countries plants should be situated, taking into account inputs, markets, transport facilities, etc.; where auxiliary plants should be situated, etc.). Other aspects (e.g., to what extent a particular industry should be vertically or horizontally integrated; what combination of imports it should use; what type of energy it should employ)22 would also be subjects for cooperation. In short, the major aim of integration at this stage would be to achieve the best utilization of available resources, given the general objectives of economic policy, by providing a better base for existing industries, by encouraging new and complementary industries, and by avoiding industrial duplication in a region that, even with the complete elimination of trade barriers, would provide a narrow market for some time.

The coordination of investment policies at the industrial level presupposes cooperation in the area of infrastructural development, such as energy, transport, and communications. Without such cooperation, the attainment of some of the goals of integration may be frustrated. The development of transport in particular is an important prerequisite for integration: by facilitating the intraregional transfers of goods and labor, it will enhance the profitability of existing industries and aid the creation of larger and more economc industrial units producing for the region as a whole. As mentioned above, in general the system of transport and communications in Central and West Africa is inadequate; numerous studies are being made to the possibilities of improving the network of roads, railways, and communications. Improvements in these fields are of particular importance to Central and West Africa for two additional reasons: first, as has already been stated, the area is large and sparsely populated, with many communities living in a state of semi-isolation. This is a major obstacle to the cohesion of the area. Second, the area contains some landlocked regions. An adequate network of transport connecting with the interior would be essential in order to allow all countries of the region to benefit from integration, especially as many of the industries are likely to be located near the ports. In view of these considerations, the construction of adequate communications and other infrastructural facilities is essential.

Another sphere for harmonization is that of economic policies in general, and particularly monetary and fiscal policies. Such harmonization would be imperative for a full economic union with free movement of goods, services, capital, and labor, but even before that stage is reached, cooperation in the monetary and fiscal fields would facilitate the achievement of the objectives of integration. In Central and West Africa few attempts have been made at harmonization in fiscal matters, although, as described earlier, some progress has been made within the UDEAC countries. In monetary matters, most countries of the region belong to essentially the same monetary system, under one of the two common central banks, and a common currency circulates within each of the sub-regions. Thus, although the habit of monetary cooperation is well established among the majority of the countries in the region, some difficulties could arise if new groupings were formed that cut across the present divisions.

External assistance

Technical assistance is required in numerous industrial, administrative, and educational areas and, with particular regard to integration, in the creation of the administrative machinery at the national and regional levels. Moreover, external technical assistance would be helpful at the regional policymaking level, in respect to the matters mentioned above (e.g., the speed and strategy of trade liberalization, harmonization of development and industrial projects, cooperation in fiscal and monetary matters). In Central and West Africa, with few exceptions, close cooperation with technical assistance from abroad has existed since independence, and many domestic civil servants have had considerable experience in the field at the national level. The main problem might be to increase the amount of technical assistance, widen its scope, and channel it on a regional basis.

The fact that domestic savings in the countries of the region are inadequate to finance their development needs, and the consequent importance of external financial assistance, is well known and need not be elaborated on. The success of integration may initially imply an increased dependence on foreign aid, even though for many proponents of regional integration one of the final objectives is a reduced dependence on external assistance. In the interim period, the nature of external aid would change by the gradual and progressive substitution of development aid, given on a regional basis to regional entities and to industries, for aid disbursed on a national basis.

Related to the provision of external finance in general is the role to be played by private expatriate companies, which may consider their investments in terms of their world-wide and metropolitan activities. On occasion these may entail some conflict of interest for their operations in an individual country. Difficulties may arise in a wide variety of fields, such as the activities into which foreign enterprises should be admitted, the level of profits and their repatriation or reinvestment, and safeguards against the control of the economy, or large segments of it, passing to nonresidents. In Central and West Africa, foreign enterprises are already firmly established in many sectors (especially the industrial sectors) of several countries.

Distribution of gains

One of the most serious, and potentially most disruptive, difficulties that can arise in economic integration discussions is the distribution of expected gains from integration. Disagreement on this issue can prevent the provisions of a regional union from being implemented, or can weaken and destroy the union at a later date. Differences in the level and the rate of economic development and the tendency, in an integrated community, for investments to gravitate to centers where the existence of previously established industries provides the advantages of external economies constitute the root of this problem. This process of polarization may exacerbate the diversity in the stages of development existing before integration. A similar process of polarization may also result among a group of countries at approximately the same level of economic development on account of other factors, such as geographic situation or the existence or absence of infrastructure.

Difficulties regarding the distribution of gains may be especially serious where industrial programs and investment policies are also to be integrated. Where a central agency influences or takes the decisions regarding the priority of the industries to be established, the location of these industries, the number of plants that may be established (in order to avoid duplication), the problems of determining an equitable distribution of profits may be difficult to resolve.

Related to the problem of the distribution of gains is that of the distribution of losses. For instance, one country may depend more heavily than others on customs duties as a source of fiscal revenue, prior to integration; or, following integration and the establishment of preferential duties, a country that depends heavily on imports may change the source of its imports to a higher cost producer within the community. In the first instance the country in question would be likely to experience a decline in fiscal revenue; in the second, as a result of trade diversion, import costs would rise, and this would affect domestic costs and prices.

One of the difficulties in attempting to mitigate such problems is the lack of mutually acceptable objective criteria regarding the equitable sharing of gains and losses within a regional community. One criterion could possibly be a reduction in the differences in the levels of development of the member countries, but this criterion would present difficult problems of measurement and might conflict with other objectives of economic integration, such as the establishment and location of industries on the basis of technological and economic considerations of efficiency.

Notwithstanding these difficulties, various ways may be devised to deal with the problem. The provision of special quotas, exemptions, and tariffs, the establishment of a common fund for compensating countries that are losing more than others, and the creation of a development bank for investments in the relatively poorer countries are among the means of bringing about a more equitable distribution of gains and losses. However, once such instruments have been established, disagreements may occur over their application.

Two instances of such devices are the taxe unique and the Solidarity Fund employed in the UDEAC, as described earlier. The taxe unique is intended to compensate countries purchasing from within the union and to encourage union industries. The Solidarity Fund appears to have been established for the purpose of redistributing customs revenues to less favored countries. However, in spite of these attempts, two members of the UDEAC announced that they would leave the union reportedly over the issue of the distribution of gains. Similarly, the UDEAO has been unable to cope successfully with problems in this regard, and this partially explains the relatively slow progress toward integration of that organization. These examples underscore the importance of this issue in integration and of appropriate institutional arrangements.

Fiscal effect

A potential financial difficulty is the fiscal impact of integration. For many developing countries, import duties constitute an important, and in some the major, source of revenue for the government, reflecting the fact that they are relatively easy to impose and to collect. Table 6 shows, for West African countries, the importance of import and export duties.

In many Central and West African countries this problem has already had to be faced, as many of the duties on intraregional trade have been reduced or eliminated, and the duties on imports from the area’s major trading partner—the EEC—are also being reduced. While this problem may not be serious in the early stages of integration in the region (owing to the low level of intraregional trade), to the extent that integration increases intraregional trade at the expense of trade with third countries, alternate sources of tax revenue will have to be developed.

Table 6.

West Africa: Composition of Tax Revenue, Averages, 1963–65

(In percentages of total tax revenue)

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Source: United Nations, Economic and Social Council, Problems of Plan Implementation—Economic Co-Operation in West Africa, E/AC.54/L.26/Add. 2 (Addis Ababa, 1968).

In considering the magnitude of import duties, there is always a definitional problem: in some countries import taxes are classified under different categories.

1961-63.

1964-66.

Intraregional payments

Mention must also be made of the payments problems that may arise in connection with economic integration, although the subject of special regional payments relations among developing countries is an extensive one requiring separate study.23 Proponents of the establishment of special regional payments mechanisms among developing countries have argued that the creation of a payments union is an indispensable precondition for establishing a regional customs union or free trade area. They maintain that it would promote integration by facilitating trade liberalization, i.e., by accommodating the balance of payments difficulties that would result from unpredictable flows of trade released by the abolition of barriers.24 This implies that the payments union would have a common fund to extend balance of payments assistance.

The payments systems in existence in Central and West Africa may be classified in three categories: (1) countries with a common payments system as members of the French Franc Area; (2) countries that are members of the sterling area; and (3) other countries. Of the other countries, the Democratic Republic of Congo and Liberia have no restrictive prescription of currency regulations, while Guinea relies to a significant extent on bilateral payments agreements.

At a later stage of economic integration, and within a regional organization embracing more than one of the above-mentioned payments areas, the problem of intraregional payments may become an important one. However, at the present levels of intraregional trade and those that may reasonably be expected in the foreseeable future, and given the relatively free payments systems in effect in most of the countries of the region, the establishment of a regional payments union is not a prerequisite for the creation of a regional customs union, even if it may be considered desirable on other grounds.

Special preferential links

A feature peculiar to Central and West Africa is the existence of special links between the countries of the area and European countries. Most of the countries of the region (i.e., the countries belonging to the French Franc Area) are linked to France by virtue of special financial arrangements reflected through Operations Accounts with the French Treasury.25 These countries and the Democratic Republic of Congo are also linked to the EEC through the Yaounde Convention, while Ghana, Nigeria, and Sierra Leone are members of the sterling area. Nigeria, furthermore, is associated with the EEC through an Association Agreement. Although existing regional arrangements do not conflict with these special links, it is difficult to say whether the establishment of a community cutting across these links would not have to surmount serious obstacles. The Yaoundé Convention is not explicit on this issue. Under Article 9 the associated countries may form customs unions or free trade areas with third countries provided that they “neither are nor prove to be incompatible with the principles and provisions of the said Convention.” However, under Article 7 the treatment accorded by the associated countries to goods originating in the EEC countries “shall in no case be less favorable than that applied to goods originating in the most favored third country.” The implications of these articles have not yet been tested.

The proposed ECWA combines countries belonging to the Yaoundé Convention with others that are not members. It is as yet too early to know the direction and impetus of this organization, and therefore difficult to say whether it will test the above-mentioned provisions of the Yaoundé Convention.

IV. Conclusions

This study has considered certain aspects of economic integration with reference to the countries of Central and West Africa. The argument for some kind of integration among these countries would appear to be generally supportable: most of the countries in question have extremely narrow domestic markets, which inhibit the establishment of new industries, and many of the existing industries operate below capacity. Moreover, there is an implicit assumption that the economic gains from integration cannot in present circumstances be derived through other means, such as a general liberalization in the access to markets.

Clear as the case may be for steps to integrate the economies, integration will not be a panacea for the development problems of the countries concerned, and it should not constitute the only or overriding objective of economic policy in the area. There is no full substitute, in the foreseeable future, for the trade of the countries of the region with the advanced markets of the world, especially given the commodity structure of their exports and the need for imports of capital goods and some raw materials for industries established on a regional basis.

Available preliminary studies indicate that there are a number of possibilities for the establishment of industries serving the region as a whole. The region has a variety of natural resources, and the production of many consumer and intermediate goods appears feasible. The free movement of goods within the region would be a spur to the establishment of new industries and to the expansion of existing ones. But this, by itself, is not sufficient: of utmost importance is the creation of an environment in which industrial investment, both domestic and foreign, is attracted and coordinated. This implies a mechanism that makes possible a region-wide investment plan, avoiding duplications and encouraging complementary industries. This would serve to make the best use of the region’s resources. The role of such a mechanism would be enhanced if economic aid could also be geared to the development needs of the whole region.

The obstacles and difficulties of integration are not to be underestimated. This paper has concentrated mostly on policies of a structural, economic, financial, and administrative nature. However, the cardinal importance of political factors, namely, the political will to cooperate, must be emphasized. The creation and successful implementation of any regional economic community will ultimately be a function of political decisions. Economic nationalism and policies of national self-sufficiency could thwart moves toward integration and cooperation. As to economic factors, while most of the considerations in this paper have been in relation to industry, the importance of the development of agriculture and mining must not be overlooked. The development of these sectors would contribute to an enlargement of the market for industrial products, as well as provide the funds for the establishment of new industries.

With regard to other preconditions, the outlook for the countries of Central and West Africa may be considered favorable, on balance. The habit of cooperation is already well established; the countries of the region have a similar past; several common institutions with varying degrees of operative success already exist; most of the countries have a common monetary system and currency; all but a few are also associated with the EEC. Moreover, most are in the relatively early stages of development when the problems of integration are probably easier to solve. On the other hand, the countries vary in size and, in some instances, in the level of their economic development; and there are differences of language and in links with third countries.

APPENDICES

I. Central and West Africa: Grouped Basic Statistics of Economic Organizations

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Sources: See tables in the text. Most of the figures refer to the year 1965.

Weighted average.

Union Douanière et Economique de l’Afrique Centrale—Cameroon, Central African Republic, Chad, Congo (Brazzaville), and Gabon.

Union des Etats de I’Afrique Centrale—Central African Republic, Chad, and Democratic Republic of Congo.

Union Douaniere des Etats de I’Afrique de I’Ouest—Dahomey, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta.

Economic Community of West Africa—Dahomey, Ghana, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta.

II. Two Approaches to Economic Integration

The term economic integration is an imprecise one and may connote anything from a general agreement to cooperate in certain spheres of economic endeavor or policy to a full economic union. Between these two extreme connotations are the preferential trade or payments organization, the free trade area, and the customs union. However, most references to economic integration, especially with regard to the developing countries, relate to a customs union, supplemented perhaps by arrangements in contiguous fields. In what follows, economic integration refers to customs unions.

Theoretical discussions of the benefits of economic integration and of the necessary conditions for moving toward it may conveniently, if somewhat arbitrarily, be divided into two categories reflecting a basic difference between the hypotheses used in the analysis: The one is based on a static view of economic conditions and the analysis proceeds from a rearrangement of policies and a reallocation of resources within that framework, whereas the other approach bases its analysis on dynamic factors, i.e., economic growth. A further basic difference between the two approaches is that the first takes a world view of the process of economic integration and assesses the benefits and drawbacks on that basis, whereas the dynamic approach is toward an asymmetrical view of international discrimination, looking at the question from the vantage point of developing countries, and sometimes justifying this view with references to the historical importance of heavy protection in the development of the United States and also of parts of the British Commonwealth.

The static view can be briefly summed up as follows.26 The point of departure is the given conditions of production and organization (allocation of resources, competitive framework, etc.) with neoclassical assumptions regarding full employment, factor mobility, returns to scale, etc. The prime goal of integration then becomes a more rational and efficient use of resources, namely, a shift in the sources of supply. The elimination of barriers within the union, and the establishment of a common external barrier, will have a trade creation and a trade diversion effect. The former, which will lead to an increase in the real incomes of the people of the union, will take place as demand shifts to the more efficient suppliers within the union. The enhanced efficiency is the result of a greater degree of competition, a higher degree of specialization, and greater economies of scale made possible by the enlargement of the market. The benefits mentioned above are particularly likely to occur if, prior to integration, similar industries in the member countries were protected. The trade diversion effect results from a shift of demand from low-cost producers outside the union to high-cost producers within the union, brought about by the common external tariff barrier. This is particularly so if, prior to integration, dissimilar industries were protected in the countries making up the union.27

Thus, whether or not integration is worthwhile (on the basis of a global welfare consideration) depends on the relative importance of the trade creation and trade diversion effects. If the trade creation effect is greater than the trade diversion effect, then integration is worthwhile; if the opposite is true, integration is not beneficial. However, in certain instances a balance of disadvantage may be compensated for by the external growth effects of integration; high economic growth in the union may induce an import demand from third countries that will more than offset the reduced demand resulting from the trade diversion effect.

The outcome of economic integration will depend, to a large extent, on the structure of protection prior to integration: “Customs unions are not important, and are unlikely to yield more economic benefit than harm, unless they are between sizable countries which practice substantial protection of substantially similar industries.” 28 The beneficial effects will also depend on the volume and direction of foreign trade prior to integration.29 Given the volume of trade, a customs union is likely to increase welfare, the higher the proportion of trade with union partners and the lower the total volume of trade before integration.

The dynamic approach questions the assumptions, hypotheses, and criteria of the conventional view.30 It maintains that the latter is based on static welfare assumptions and that this is irrelevant as far as the developing countries are concerned. The major criterion for the developing countries is not simply a better allocation of existing resources (although this benefit is acknowledged) but an acceleration of the rate of growth. Thus, it may appear to be a matter of emphasis rather than a choice between the two. If, in short, integration helps to achieve a faster rate of growth, then it is beneficial. Most of the arguments about trade creation, e.g., the benefits of an enlarged market, are accepted equally by the two schools. The main exception would appear to be about competition. In the static formulation, increased competition is one of the benefits of economic integration because of its effect on efficiency. In the dynamic version, one of the aims should be to avoid creating “excessive” competition, as many of the industries in the developing countries are relatively new, and there would be little sense in “stronger infants killing weaker infants.” Thus, the problem is to ascertain what degree of competition, under given circumstances, is the correct one, for even infants need exercise if they are to grow satisfactorily.

The most vehement rejection of the static by the dynamic approach concerns the trade diversion effect. In general, the trade diversion effects of a customs union among less developed countries are considered to be of small importance. But the alleged harmful effects of trade diversion, whatever their magnitude, are denied on other grounds. According to the most extreme version, one of the aims of integration in less developed countries should be to maximize trade diversion. This view is based on the premise that in less developed countries there is widespread underemployment or unemployment of resources, thus the opportunity cost of labor is near zero, and trade diversion would bring about a higher level of employment and a better resource utilization. Although this may foster inefficient production, the implied principle is that inefficient production is better than no production at all. The more temperate view is that in certain cases trade diversion may not be harmful, as it will divert increases in demand and help to enlarge the market. Unlimited trade diversion would prove costly in terms of the complementary capital needed and in terms of a misallocation of domestic resources.

Intégration économique en Afrique centrale et occidentale

Résumé

On se préoccupe beaucoup, depuis quelques années, de l’intégration économique des pays en voie de développement. Elle est considérée comme un moyen d’accélérer la croissance économique en fournissant une base plus solide à l’industrialisation. Si, d’après la théorie économique traditionnelle, l’intégration de l’Afrique centrale et occidentale ne semble pas très justifiée, en revanche la fragmentation de cette région en un grand nombre de petits marchés incite à penser qu’une certaine forme d’intégration de ces marchés est nécessaire pour permettre d’en utiliser au mieux les ressources. Des études préliminaires ont fait ressortir qu’il est possible, étant donné un marché régional, de créer un certain nombre d’industries fondées sur les ressources locales. De nombreuses organisations régionales existent d’ores et déjà en Afrique centrale et occidentale. Celles qui sont le plus étroitement liées à l’intégration économique sont l’Union Douanière et Economique de l’Afrique Centrale, l’Union des Etats de l’Afrique Centrale, l’Union Douaniere des Etats de l’Afrique de l’Ouest et la Communauté Economique Ouest-Africaine. Si l’Union Douaniere et Economique de l’Afrique Centrale a réalisé quelques progrès dans la voie de l’intégration, ailleurs les progrès sont assez limités. La création d’une communauté économique régionale viable en Afrique centrale et occidentale pose un grand nombre de questions et de problemès, d’autant plus que cette communauté déborderait les cadres existants, lesquels sont fondés essentiellement sur les liens qui existaient entre les divers pays avant leur accession à l’indépendance. II convient de citer en particulier l’harmonisation des intérêts propres à chaque nation et à chaque secteur, les questions relatives à l’étendue et à la composition de la communauté, à l’ampleur de l’intégration et à la stratégic à employer pour y parvenir, la question de l’aide extérieure, le problème crucial de la répartition des gains, les effets de l’intégration sur les recettes fiscales, le problème des paiements interrégionaux et les régimes préférentiels en vigueur avec les pays européens. S’il est vrai que l’intégration présente de grandes difficultés et qu’il faut se garder de la considérer comme une panacée qui résoudra le problème du sous-développement économique, une certaine forme d’intégration économique régionale pourrait contribuer au développement économique de la région.

Integratiýn econýmica en Africa central y occidental

Resumen

La integratión económica entre los países en desarrollo ha atraído considerable atención en los últimos años. Se la considera como un método para fomentar un crecimiento económico más rápido pues facilita una base más factible para la industrializatión. Aunque de acuerdo con la teoría económica tradicional no parece haber mucha justificatión para la integratión de Africa central y occidental, la fragmentatión de esa zona en un gran número de mercados pequeños ha hecho que se aduzca el argumento de que se necesita una cierta integración de mercados a fin de conseguir la utilización óptima de los recursos de la región. Los estudios preliminares indican que, de haber un mercado que abarcara toda la zona, se prodría establecer una serie de industrias basadas en los recursos de la zona. Ya existen bastantes organizations regionales en Africa central y occidental. La Unión Aduanera y Económica de Africa Central, la Unión de Estados de Africa Central, la Union Aduanera de Estados de Africa Occidental, y la Communidad Económica del Africa Occidental son las que se ocupan mas de cerca de la integratión económica. En la Unión Aduanera y Económica de Africa Central se ha realizado cierto progreso hacia la integratión, pero por lo demas el progreso hasta la fecha ha sido de carácter limitado. Hay muchas cuestiones y problemas que obstaculizan la creatión de una comunidad económica regional viable en Africa central y occidental, y especialmente la creatión de una comunidad que vaya más allá de los presentes acuerdos, los cuales se basan principalmente en los lazos previos a la independencia de los países de la zona. Entre otros aspectos se pueden mencionar la conjugatión de los intereses nacionales y seccionales, las cuestiones relativas a la dimensión y compositión de la comunidad, el ámbito y estrategia de la integratión, la cuestión de la ayuda exterior, el problema importantsíimo de la distributión de las ganancias, los efectos fiscales de la integratión, el problema de los pagos interregionales, y los lazos preferenciales que existen con países europeos. Aunque la integratión resulta difcíl y aunque no serà una panacea para el problema del subdesarrollo económico, una cierta forma de integratión económica regional podría contribuir al desarrollo económico de la zona.

*

Mr. Nowzad, economist in the Exchange and Trade Relations Department, is a graduate of the Universities of Birmingham and Oxford.

1

Among organizations created within the past two years are the following: the Andean Group of the Latin American Free Trade Association; the Caribbean Free Trade Association; the Eastern Caribbean Common Market; the East African Community; the Economic Community of West Africa; the Union of Central African States; the special payments system to be established under the Regional Cooperation and Development Treaty Between Iran, Pakistan, and Turkey; and the Association of Southeast Asian Nations.

2

United Nations Conference on Trade and Development, Report of the United Nations Conference on Trade and Development on Its Second Session, TD/L. 37, Annex I (New Delhi, 1968), p. 65.

3

In the economic literature evaluating the pros and cons of economic integration, as discussed in Appendix II, more emphasis has heen placed on the contribution of integration to economic growth than on static, general welfare considerations.

4

For the purposes of this paper, Central Africa comprises Cameroon, Central African Republic, Chad, Congo (Brazzaville), Democratic Republic of Congo, and Gabon. West Africa consists of Dahomey, Ghana, Guinea, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, and Upper Volta. Although Rwanda and Burundi, on the basis of language and history, could be considered part of Central Africa, their geographic position would suggest that they should look to East Africa (including the Malagasy Republic) for any form of economic integration. Indeed, Burundi has applied to join the East African Community, composed of Kenya, Tanzania, and Uganda.

5

A definition of these terms is included in Appendix II.

6

This may be compared with the following statement: “By a small nation I mean an independent sovereign state, with a population of ten million or less,” S. Kuznets, “Economic Growth of Small Nations,” in Economic Consequences of the Size of Nations, ed. by E.A.G. Robinson (London, 1960), p. 14.

7

United Nations, Economic and Social Council, Report of the West African Industrial Co-Ordination Mission, E/CN.14/246 (Addis Ababa, 1964); United Nations, Economic Commission for Africa, Report of the ECA Mission on Economic Co-Operation in Central Africa, E/CN.14/L. 320/Rev.l (New York, 1966).

8

Iron and steel: in West Africa a substantial plant on the coast supplemented by a smaller plant in the hinterland countries; in Central Africa an iron and steel works based on Inga power capacity, iron and steel works at Owendo or Pointe Noire, and, in the longer run, works in the Central African Republic. Aluminum: large-scale production of aluminum in Ghana based on alumina from Guinea; production based on Sounda power; production already under way in Cameroon for the world market and for a rolling mill serving the regional market. Other metal products: potential opportunities for further production of metal products, though more extensive studies are needed. Chemicals and fertilizers: complex of basic chemicals and fertilizers as one of the major industrial development possibilities of the region, including production of caustic soda, ammonia, nitric and ammonium sulfate, sulfuric acid, paint, varnish, perfume, soap, and plastics.

9

See United Nations, Economic and Social Council, Background Paper on the Establishment of an African Common Market, E/CN.14/STC/20 (Niamey, 1963), p. 3

10

Cameroon, Central African Republic, Chad, Congo (Brazzaville), and Gabon.

11

The main organizations in Africa are as follows: the African Development Bank, the Central African Customs and Economic Union, the Central Bank of Equatorial African States and Cameroon, the Common Organization of African and Malagasy States, the East African Community, the Organization of African Unity, the West African Monetary Union, the Central Bank of West African States, the Conseil de l’Entente, and the West African Customs Union. There is also the regional UN agency, the Economic Commission for Africa. The Union of Central African States and the Economic Community of West Africa are recent additions to this list.

Besides the organizations listed above, there are numerous other cooperative arrangements, e.g., the African Groundnut Council, Air Afrique, the Cocoa Producers Alliance, the Inter-African Coffee Organization, the Transequatorial Communications Agency, and the Senegal River Committee.

12

During a transitional period ending in 1972, countries may introduce a “supplementary tax,” the rate of which cannot be changed without prior consultation with other members. This tax, replacing all other taxes on imports, is to compensate for the differences in tariffs prior to unification.

13

The Common Investment Convention, published in December 1965, goes beyond the provisions of the UDEAC treaty in that its coverage is far more extensive. The Convention provides for an approval system and further stabilization of taxes.

14

Each country has subscribed 5 per cent of the capital, with the remainder coming from abroad.

15

The separation of the Central African Republic and Chad from the UDEAC was to become effective on January 1, 1969. However, in December 1968 the Central African Republic reportedly decided to leave the Union of Central African States and to rejoin the UDEAC.

16

A full description of these institutions is given in “The CFA Franc System,” Staff Papers, Vol. X (1963), pp. 345-96.

17

The others are those of the Malagasy Republic and certain minor French possessions.

18

CFA stands for Communaute Financiere Africaine (African Financial Community); the currency symbol is CFAF.

19

Burundi, Cameroon, Central African Republic, Chad, Congo (Brazzaville), Democratic Republic of Congo, Dahomey, Gabon, Ivory Coast, Malagasy Republic, Mali, Mauritania, Niger, Rwanda, Senegal, Somalia, Togo, and Upper Volta.

20

The FED can pay up to 3 per cent of the interest on such loans.

21

There are, however, special arrangements for certain specified products.

22

In practice, of course, many of these choices would be limited and determined by technological and structural factors.

23

Briefly, it may be argued theoretically that trade liberalization will lead to an increase in the volume of trade and consequently of payments, especially if capital transactions are also freed. This implies that the likelihood of payments disequilibria will be enhanced at a time when, by virtue of the trade and payments liberalization, the protective and defense mechanisms of the balance of payments have been weakened. This, therefore, calls for special provisions for dealings with payments problems arising as a direct result of the establishment of a customs union.

24

See, for example, “African Payments Union,” in United Nations, Economic Commission for Africa, Economic Bulletin for Africa (New York), Vol. VI (July 1966), pp. 63-78.

25

See Section II of this paper. The countries concerned are Cameroon, Central African Republic, Chad, Congo (Brazzaville), Dahomey, Gabon, Ivory Coast, Mali, Mauritania, Niger, Senegal, Togo, and Upper Volta. These countries, plus the Malagasy Republic, have often been referred to as the CFA franc countries. In 1962 Mali began issuing the Mali franc, but re-established an Operations Account with the French Treasury early in 1968. Also, in 1963, the Malagasy Republic changed its currency to the Malagasy franc within the established arrangements.

26

The two basic works are Jacob Viner, The Customs Union Issue (New York, 1950) and J.E. Meade, The Theory of Customs Unions (Amsterdam, 1955). See also James E. Meade, Problems of Economic Union (Chicago, 1953) and Bela Balassa, The Theory of Economic Integration (Homewood, Illinois, 1961). For a recent survey of the field, see R.G. Lipsey, “The Theory of Customs Unions: A General Survey,” The Economic Journal, Vol. LXX (1960), pp. 496-513.

27

The trade creation effect can be measured by taking the volume of trade created and multiplying each item by the difference in costs; the trade diversion effect can be measured similarly by calculating the volume of trade diverted, and for that volume multiplying each item by the cost differential. These crude calculations assume an elastic supply schedule.

28

Viner, op. cit., p. 135.

29

Lipsey, op. cit.

30

See, for example, Sidney Dell, A Latin American Common Market? (London, 1966) and Trade Blocs and Common Markets (New York, 1963); William G. Demas, The Economics of Development in Small Countries with Special Reference to the Caribbean (Montreal, 1965); B. Balassa, Economic Development and Integration (Mexico, 1965).

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Cover IMF Staff Papers
IMF Staff papers: Volume 16 No. 1
Author:
International Monetary Fund. Research Dept.
Volume/Issue:
Volume 1969: Issue 001
Publisher:
International Monetary Fund
ISBN:
9781451956245
ISSN:
1020-7635
Pages:
194
DOI:
https://doi.org/10.5089/9781451956245.024