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2 Current Economic Situation of West African Economies

2.1 Historical Economic Growth Performance of ECOWAS Countries

Table 1 displays the statistics on growth of real per capita gross domestic product (GDP) for ECOWAS countries. The statistics are reported for various periods ending in 2012, namely 5 years (since 2008), 10 years (since 2003), 20 years (since 2003) and since independence of most West African countries, i.e. 52 years (since 1961). The means and coefficients of variation of per capita GDP growth are shown separately for member countries of Union Economique et Mone´taire Ouest-Africaine (UEMOA) and non-UEMOA members. Statistics for countries that became independent after 1961—Cape Verde, Guinea Bissau and The Gambia—have been adjusted. The average growth of real per capita GDP for all countries is 0.99 % over the entire 52-year period, which represents an accumulated increase of 66.9 %. The breakdown shows that non-UEMOA economies experienced an increase of 114.7 %, which is 3.33 times faster than for members of UEMOA countries that posted 34.4 %. In other words, over more than half a century UEMOA countries improved the per capita GDP of their residents by slightly more than one third. Two countries of UEMOA stand out by their decline over the 52 year-period; Senegal suffered a decline of 5.6 % while Niger reported a drop of 66.6 %.

Table 1 Growth of real per capita GDP of ECOWAS and selected emerging countries (in %)

Country

Mean

Mean

C.V.

Mean

C.V.

Mean

C.V.

2008–

2003–

2003–

1993–

1993–

1961–

1961–

2012

2012

2012

2012

2012

2012

2012

name

5 years

10 years

10 years

20 years

20 years

52 years

52 years

UEMOA

Benin

0.90

0.63

155.25

1.10

110.18

0.75

390.53

Burkina Faso

3.05

3.13

67.98

2.91

82.68

1.91

161.61

Cote d'Ivoire

0.61

-0.04

-7,899.74

-0.18

-1,814.73

0.23

2,147.91

GuineaBissau

-0.03

-0.77

-636.90

-0.82

-957.37

0.20

3,686.62

Mali

0.36

1.41

169.01

1.68

178.66

1.36

356.63

Niger

2.13

1.08

324.37

0.37

922.50

-0.78

-728.80

Senegal

0.28

1.29

118.52

0.93

207.31

-0.11

-3,247.81

Togo

1.37

0.82

164.00

0.53

1,142.89

0.97

602.07

Average

1.08

0.94

0.81

0.57

Non-UEMOA

Cabo Verde

3.46

5.62

67.34

7.11

60.50

5.82

72.73

The Gambia

0.70

0.52

685.01

0.26

1,255.82

0.58

601.03

Ghana

6.12

4.66

62.51

3.18

80.44

0.89

498.12

Guinea

0.23

0.14

985.69

0.66

224.54

0.42

391.42

Liberia

7.13

1.86

687.05

7.76

323.75

0.39

4,876.71

Nigeria

3.61

6.62

122.49

3.40

197.03

1.55

534.14

Sierra Leone

4.96

3.91

85.86

2.01

324.92

0.69

810.89

Average

3.74

3.33

3.48

1.48

Average all countries

2.33

2.06

2.06

0.99

Brazil

2.28

2.55

94.14

1.94

112.54

2.40

158.78

China

8.72

9.87

17.54

9.34

20.47

6.79

101.95

India

5.43

6.33

31.07

5.15

42.05

3.16

102.61

Source: World Bank, World Development Indicators, Online, May 2014

In contrast, Cape Verde, has recorded a 711 % increase in its per capita GDP since it gained independence in 1975. Between 1961 and 2012, Brazil posted a cumulated real per capita growth rate of 243.24 %, India 404.18 % and China 2,945 %. For ECOWAS countries the average growth rates are very similar over the 10-year and 20-year periods ending in 2012, UEMOA and non-UEMOA economies showing comparable degrees of consistency over time despite the 3.3:1 ratio in their respective average per capita GDP growth rates. Two countries, Coˆte d'Ivoire and Guinea Bissau, recorded negative growth rates during these two periods—10 years and 20 years—mostly caused by their internal civil unrest. The two groups of countries saw their best performance during the 5-year period 2008–2012, and recorded slight convergence towards Brazil, India and China that experienced a decline in their respective growth rates in view of the 10-year period 2003–2012 compared to the 5-year period 2008–2012.

One of the most striking features of ECOWAS economies is their high level of volatility. Considering the 10-year period (2003–2012), the 20-year period (1993–2012) and the 52-year period (1961–2012) the coefficient of variation is abnormally high for most of the countries, especially when compared to the same statistics for the three emerging countries, Brazil, India and China. This historical high volatility makes prediction of future national income very difficult and point estimation very uncertain. Therefore, the overall average performance of ECOWAS countries can be deemed rather modest and its volatility incommensurately high compared to the three main emerging countries of the last half-century.

Table 2 reports the main sources of finance in 2012 of ECOWAS countries and three key emerging economies, Brazil, China and India. It shows that five countries, Benin, Guinea Bissau, Liberia, Niger and Togo, have no public and publiclyguaranteed (PPG) debt loaned by international private creditors. Burkina Faso, The Gambia, Guinea and Mali have insignificant PPG debt funded by private creditors. Only three countries, Coˆte d'Ivoire, Nigeria and Senegal have private non-guaranteed debt (PNG) and their respective stock of PNG debt is rather low compared to the stock of PPG debt. In comparison, the stock of debt from private creditors, whether PPG or PNG, represents a higher percentage of total debt for Brazil, China and India. In other words, sovereign borrowing from private sources plays an important role in the emerging economies, which underscores the important contribution of international credit markets to developing countries' growth strategy. In the absence of significant borrowing from international private creditors, ECOWAS countries face a difficult challenge in sustainably financing their economic growth.

Table 2 Main sources of finance of ECOWAS and selected emerging economies in 2012

Country

PPG total debt stock in Mln

$

PNG debt stock in Mln $

GFCF/GDP

in %

Savings/GNI in %

Official creditors

Private creditors

Benin

1,303.6

0

0

17.6

13.1

Burkina Faso

2,192.0

12.7

0

16.7

15.6

Cape Verde

1,123.6

118.2

0

46.7

22.8

Coˆte d'Ivoire

5,808.7

128.6

2,490.2

10.1

13.3

The Gambia

386.2

9.6

0

19.2

12.6

Ghana

5,979.3

2,627.1

0

29.0

9.1

Guinea

830.3

12.0

0

15.0

-7.2

Guinea Bissau

213.4

0

0

7.5

N.A.

Liberia

208.3

0

0

25.4

32.9

Mali

2,793.4

3.5

0

22.2

8.9

Niger

2,078.6

0

0

33.8

N.A.

Nigeria

6,151.6

500.0

850.0

8.2

N.A.

Senegal

3,694.6

356.6

265.5

23.0

22.0

Sierra Leone

623.7

209.6

0

40.3

9.9

Togo

450.0

0

0

18.6

12.3

Brazil

38,959.4

77,668.9

286,829.9

18.1

15.0

China

64,463.5

4,539.9

159,670.5

46.8

51.4

India

78,026.4

41,405.8

160,203.9

30.4

30.7

Source: World Bank, World Development Indicators, Online, May 2014

Most of them also have very low Gross Fixed Capital Formation to Gross Domestic Product (GFCF/GDP) ratios and even lower Savings to Gross National Income (Savings/GNI) ratios. These two statics give evidence that ECOWAS countries invest little and save little, which may help explain their historically modest per capita growth record.

Table 3 reports sovereign credit ratings of a number of West African countries published by the three major international rating agencies, Standard and Poor (S&P), Moody's and Fitch as of April 2014. While S&P has ratings for six countries, Moody's and Fitch rated three countries with only Ghana and Nigeria covered by all agencies. For each of the rating agencies, no West African country reaches the minimum rating required to constitute investment grade sovereign. In other words, West African countries cannot access private sovereign debt markets, which constitutes a significant hurdle to international finance for their development. This situation does not preclude the possibility of international borrowing from official creditors although, as can be seen in Table 2, this source is insufficient for the development needs of West African countries. Table 2 also confirms the poor ratings in Table 3 because only Cote d'Ivoire, Nigeria and Senegal have stocks of private non-guaranteed debt and the amounts are very low.

Table 3 Sovereign credit risk ratings of ECOWAS countries

ISO

code

Country

S&P rating

S&P outlook

Moody's rating

Moody's outlook

Fitch rating

Fitch outlook

BF

Burkina Faso

B

STA

BJ

Benin

B

NEG

CV

Cape Verde

B+

STA

B+

STA

GH

Ghana

B

STA

B1

STA

B+

NEG

NG

Nigeria

BB-

STA

Ba3

STA

BB-

STA

SN

Senegal

B+

NEG

B1

STA

Minimum investment grade rating

BBB-

Baa3

BBB-

Date: 2 April 2014

Source: https://docs.google.com/a/mail.wbs.ac.uk/spreadsheet/ccc?key¼0AonYZs4MzlZbdDdp-VmxmVXpmUTJCcm0yYTV2UWpHOVE#gid¼20

theguardian.com/news/datablog/2010/apr/30/credit-ratings-country-fitch-moodys- standard#data

In summary, although West African countries have reached rates of growth of their per capita GDP in the last few years, the historical record over the last half century shows a different picture characterized by low economic growth and a high degree of volatility. Non-UEMOA countries seem to perform significantly better than UEMOA countries Most West African countries have modest levels of investment and the majority does not save enough for their investments. West African governments have low levels of international indebtedness from official as well as private sources while their private sectors have no access to international private debt markets and when they do, the amounts borrowed are insignificant. These countries have sovereign credit ratings that are so low, few of them are actually rated by the international agencies, that they do not constitute investment grade sovereigns and therefore cannot access private international debt markets.

The foregoing analysis underscores the limited capacity of West African countries to achieve long term economic growth without access to international debt finance. Yet, their current sovereign credit ratings show that their level of riskiness disqualifies them from private international debt markets. One of the remedies to this situation that can be explored is whether regional integration through creation of a common currency union can alter the risk profile of individual countries and make them eligible as investment grade sovereigns. The link between currency union membership and improved solvency is established through access to higher levels of financial resources available for service of international debt service obligations made possible by the common currency arrangement. In the next section a model of risk assessment and pricing of sovereign debt is presented for a single country that is not a member of a common currency union. An equilibrium relationship is established between the country's level and variability of its foreign reserves on the one hand, and the probability of default or debt service stress and value of the foreign debt on the other hand. The following section examines the case of the country when it is a member of a common currency union with specific arrangements with respect to management of its pooled foreign reserves.

 
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