A Single Currency For Africa

African Economic & Monetary Union:

Do the Regional Integrated Arrangements of Africa fall under the Optimal Currency Area Compliance Criteria?

Article by Nicholas George Donovan Grazia

The African continent is moving towards unification in economic terms, over a period of decades there have been meetings and arrangements to create the African Union (AU). The African Union succeeds the Organization of African Unity, which was an intergovernmental organization established in 1963 in Addis Ababa, Ethiopia spearheaded by Kwame Nkrumah. The African Union is a continental union that consists 55 member states geographically located on the African continent. The birth of the AU occurs on September 9th 1999 in Sirte, Libya at the Sirte Declaration. Sirte was Muammar Gaddafi’s hometown, he was one of the African head’s of state pushing the hardest for the creation of a United States of Africa, some argue this is the underlying reason as to why he was assassinated.

Unification of the African states would mean that the African continent’s economy would be based upon a single currency, and a single currency for such a massive geographical unit would completely change the world economy making Africa one of the, if not the most, important currency due to the fact that the AU has just over 1 billion people and an area of around 29 million km2 (11 million mi2). The African Monetary Union is the proposed creation of an economic and monetary union for the countries within the African Union, this economic and monetary union would be administered by the African Central Bank. A union such as this would require the creation of a new and unified currency amongst the AU, something similar to the Euro for the European Union. Today we are seeing hypothetical names for this new unified currency such as the AFRO, the AFRIQ, the NILO, or the ECO.

Talk about regional integration in economic terms for Africa dates back to colonial days, but only in 1991 was a joint effort made on a continental level when the OAU’s treaty mainstreamed a single monetary zone for Africa. In Abuja, Nigeria, an international agreement was signed on June 3rd 1991 known as the Abuja Treaty which subsequently created the African Economic Community who called for an African Central Bank to be implemented by 2028. The plan, as of 2019, is to have established an African Economic Community with a single currency by 2023.

The initial stages of integration foresee the build up of the existing regional cooperation and unification. The final stage calls for the establishment of the African Central Bank (ACB), culminating in the forging of a single currency for Africa which would result in an African economic and monetary union. The African Central Bank (ACB) is one of the five original financial institutions of the African Union. Over time the ACB will take over the responsibilities of the African Monetary Fund. As soon as the ACB is fully established via a Pan-African Parliament legislation it will then become the sole issuer of the African single currency. The ACB will take on the role of being the banker of the African Government as well as the banker to all of Africa’s private and public institutions. The ACB will have the responsibility as well as the duty of regulating and supervising the African banking industry and through that set the official interest and exchange rates; The ACB will work in conjunction with the African Government’s administration.

On top of all that, what the 1999 Sirte Declaration of the African Union effectuated was the agenda of the African economic and monetary union. Furthermore, the Sirte Declaration made a case for an expedited execution of the operation by creating institutions of this union, which we have mentioned above. These arrangements give way for sub regional monetary unions to become the foundation of the single African central bank and its currency.

The ultimate goal of regional integration is to create a common economic space among the participating countries. Monetary and economic integration may evolve from trade links, as well as, historical and cultural ties. The process entails the harmonization of macroeconomic policies, legal frameworks and institutional architectures, towards nominal and real convergence. Other objectives of monetary union include the enlargement and diversification of market size, the promotion of intra-regional trade and the strengthening of member countries’ bargaining power in the global economy.

I found there to be two superseding motives that could possible explain the pursuit for economic and monetary union in Africa. The most evident and perceptible motive is due to the success found in the European Union, which has, in its wake, prompted other regions to strive towards similar paths of integration. This has lit a fire under the notion that a monetary union is a fruitful way of strengthening regional solidarity as well as signifying dedication to regional harmony.

The less obvious motive lies in the in the fact that Africa, as a whole, desires to rectify the weak national economic and political establishments with the implementation of supranational institutions where a common currency and monetary union would present themselves as powerful emblems.

We must face the fact that in the current situation, African sub regions are pursuing economic integration and monetary cooperation as various inconsistent speeds. This proves to be a very challenging issue because the African economic and monetary union cannot prosper until these various sub regional arrangements are robustly established.

It is important to understand the economy of the African Union before going any further. The states that make up the AU constitute the world’s 11th largest economy with a GDP of US$2263 Billion. If we measure the GDP by PPP then the AU’s economy exceeds US$1.515 Trillion, this ranks the AU 11th right after Russia. Keep in mind that that the AU also has a combined total debt of US$200 Billion.

At the moment the AU has only 2% of the world’s international trade, the 2% we see here is actually quite misleading because over 90% of international trade consists of currency features. What this means is that Africa’s 2% actually makes up the lion’s share of real commodity that is traded across the world including about 70% of the planet’s strategic minerals, which include gold, aluminum, cobalt and so on; and even though it is not a mineral petroleum tends to be Africa’s biggest earner in the foreign markets.

African countries in the 80’s and 90’s embraced economics policies that ensconced the state in all aspects of economics activities, demoting the private sector in the developmental effort. The notion was that, in order to protect African industries from global competition, they needed to be cultivated by the state. To do this, African countries imposed high tariff walls in order for these industries to mature and subsequently compete with foreign firms. The lack of a viable domestic industrial base in the vast majority of African countries can be accredited to the limited domestic markets that hamper the realization of economies of scale, the scarcity of technology and human capital which ultimately gave rise to subpar quality good and the inadequacy of resources.

The norm at the time was that import substitution policies were being financed from revenues acquired from the sale of primary commodities, as the degrees of revenue from these sources began to dwindle due to unfavorable terms of trade, the African countries had no other option but start burrowing from the international capital markets as well as from multilateral establishments in order to succor towering consumption levels. The funds borrowed, for the most part, were not used to endow production and as a result real output declined at a constant rate, and to make matters worse, expenditures rose as they were held by high debt servicing payments.

This created quite the economic crisis for Africa. Countries attempted to amend this crises by burrowing more, impose more foreign exchange controls, and continue to overvalue exchange rates as well as redirecting revenues away from the governments and towards financing the public sector recurrent budget. This lead to make the once efficient agriculture sector inefficient via the demand management strategies coupled with the sustained over valued exchange rate regime.

Due to this turbulent economic history, African countries are, at an individual level, too small to achieve economies of scale in the production and marketing of their products thus making it necessary for them to collaborate together as a region in order to attain notable levels of economic growth and become economically competitive in a world market dominated by large trading blocks. For Africa to profit from sustainable economic growth, the answer lies in economic and monetary integration.

Unfortunately the economic performance of African countries have been fairly upsetting. Africa has an average economic growth rate of 3.4%. With that in mind, the economic and social prognostication for the African region promises a brighter future if, and only if, member states of the AU endorse and administer strategies that will further install partnership and regionalism in the process of becoming fully integrated into the world economy. Integration for Africa can really put the ball in their country as it tends to boost higher growth via channels such as improved resource allocation, greater competition, technology transfers and learning and improved access to foreign capital. Regions that open themselves up to the world economies tend to show an increase in trade and investments, and growth goes hand in hand as it encourages integration.

When it comes to economics and monetary integration, the experts predicate on the Optimum Currency Area (OCA). The OCA serves as a good starting point for validating regional integration and whether it should be pursued. The definition of an OCA region relies on factors of production are being internally mobile but internationally immobile, facilitating the intraregional redistribution of resources in response to demand shifts. Kaboub sees it as the “optimum geographical domain having as a general means of payment either, a single common currency, or several currencies whose exchange values are immutably pegged to one another with unlimited convertibility for both current and capital transactions, but whose exchange rates fluctuate in unison against the rest of the world”.

Price and wage flexibility pose as the first characteristic of an OCA resulting in the basis for the argument in favour of flexible exchange rates. Financial market integration is the second characteristic one an OCA, which suggests that for a currency area to be successful it must be sufficiently integrated in financial trading. Factor market integration provides us with the third OCA characteristic. Here we cover internal factor mobility, including both interindustry mobility and interregional mobility. At number four of the OCA characteristics we have the integration of the goods market, this states that a successful currency area needs to attain a high degree of internal openness measurable by the marginal propensity to import, or the ratio of tradable to non tradable goods in production or consumption. For an OCA to work it necessitates the creation of a supranational central bank with close coordination of national monetary authorities implying the surrendering of individual country sovereignty over the conduct of monetary policy.

Another scholar expands on this theory of OCA and incorporates trade factors into the discussion. This was achieved by demonstrating what influence openness has in a currency area, stating that a country’s trade behaviour is essential to determine how optimal it is. McKinnon stated that “if we move across the spectrum from closed to open economies, flexible exchange rates become both less effective as a control device for external balance and more damaging to internal price-level stability”. When it came to the issue regarding financial credibility emphasis was made on the significance of liquidity where capital accumulation is conditional on the confidence of the domestic currency. The argument was made that small areas are more in need of a fixed exchange rate to guarantee individual currencies remain liquid, especially where intraregional trade is ample.

Another scholar argued that diversification be made a greater concern over labour mobility. The argument is that homogeneity cannot always be optimal because a country with a fixed currency is better suited at resining asymmetric shocks if the country’s economy is diversified and relied on more than one commodity for it revenue base. 

In the late 1990’s the notion of endogeneity was introduced. What this meant was that a group of countries that do not qualify as an OCA ex ante, by embracing ta common currency the same group of countries may grow to qualify ex post. This notion sabotages the conventional theory of OCA’s because it states that countries attempting to integrate that have closer trade links also have close correlated business cycles and as a result would coincide towards the ideal conditions for monetary integration. With this theory it demonstrates the difficulty in ruling out prospective common currency regions on the basis of their flaws.

When the issue of homogeneity was revisited arguments for intraregional diversification were that they serve as a safeguard to economic shock, especially for specialized economies. As a function, heterogeneity provides a risk sharing arrangement where a homogenous country with a specialized economy could gain from a monetary union with a country or countries that share a different revenue base. What this means is that when one country in the OCA has to put up with an economic shock, other member countries are unhurt and can assist temporarily the country in need. McKinnon states that there are two reasons as to why a country may decide not entering a monetary union: fragile public finances and unstable monetary model. Given that the dollar or the euro could both act as stable monetary standards in the international financial arrangement of today, the only persisting obstacles to optimal monetary integration has been shrunken substantially.

According to De Grauwe powerful trade relations are a prerequisite for a successful currency union, he also stated that a common currency leads to advantages in the reduction of instability, and finally concluded that Mundell’s criteria is too restrictive and it overlooks the principal prospective benefits of monetary integration that put the costs into focus. De Grauwe in fact lays down the foundation for a more comprehensive understanding of OCA’s which now dictate modern research on the subject.

Most of the research on economic integration and monetary union in Africa focus on the challenges of actually sustaining a monetary union and financing a fixed exchange rate regime due to reasons concerting the setbacks Africa encountered shortly after their initial enthusiasm of the early 1960 during the decolonization movements. Demonstrations of how members participating in the CFA zone were shielded from the negative impacts of economic shocks that spearheaded the global economy in the 1970’s. Individual and aggregate measures of the CFA zone’s GDP growth are higher than those of other countries in Sub Saharan Africa. Participation on policy formation in the CFA zone by controlling for the effects of exogenous influences such as resource allocations and political influences had substantial effects on member states stating that monetary integration in the CFA Zone benefited participating countries. Advantages of monetary integration were seen in other zones, not only in the CFA block. The Rand Monetary Area experienced high levels of growth and investment as well as low inflation rates in the period 1974-1993.

Nonetheless, “the CFA franc zone does not meet the conventional criteria of an optimum currency area, even after some 50 years of existence”. The argument detailing the flaw of the CFA zone is centered around its insufficient homogeneity. What was observed was that high inflation correlations for CFA countries were found and that the consistency of economic growth throughout these countries could not be established, in fact, negative correlations were spotted in some cases. The most important finding was that the explanation for the asymmetry in growth was due to the high specialization of some member countries in the production of primary products which made the susceptible to external shocks, this concludes that endogeneity may not apply to West African countries.

A study was conducted that stated that for the creation of monetary unions and its participation a nation or group of nations must only find it attractive if there are no other reasonable alternatives. This explains the creation of monetary unions in Africa during the colonial period, most notably in the French colonies. It almost comes without saying that economic issues as well as political instability can compel member states to wander  off from regional monetary arrangements. An example is the East Africa Currency Board that collapsed in 1966, almost directly afterwards member states secured their independence. The CFA zone and the RMA also lost members along the way. Botswana left the RMA in 1976; Mauritania left WAMU in 1973 and Mali exited in 1973 but reentered in 1984. A very important observation is that monetary unions must cope with members’ opposition to giving up their sovereignty when presented with limited prospects of economic benefits. Monetary unions have little to no hope of survival unless members are able to make exit costly, whether that be in terms of loses in regional benefits of links with develop countries.

Some scholars applied the OCA theory to the two existing African Francophone monetary unions. What they focused on was the shocks to aggregate output growth and to aggregate price inflation. Their results showed that if emphasis was put on the importance of of initial output shocks in assessing the cost and benefit of the monetary union and less on price shocks, the outcome should be that the CFA area should subsequently be reorganized allowing for Cote d’Ivoire and Mali to form one monetary union, whilst other CFA member states to form another union. The hinderance in terms of cost faced by CFA membership in regards to lost monetary autonomy would be greater than in a world where a monetary response to a shock is immediate. What the study concluded on was that the ultimate cost of monetary union membership would be contingent upon the extend to which price and output shocks are correspondent across countries and the level of compatibility in the long run effect of the shocks on the macroeconomy.

The cost and benefit of being a member in the South African monetary area was analyzed and the results were that the common monetary area in the region created an OCA due to the existence of common long run trends in their bilateral real exchange rates. The results showed that macroeconomic efficiency profits have the ability to grow if and when the countries in the region decided to go all in and develop a fully proficient monetary union. In the study there was evidence of similar production structures, higher output correlation and risk enclosing possibilities. Parallel to this, the periphery countries in the union were able to fall back on South Africa’s capital markets and its overdraft facilities at the reserve bank. Nevertheless, the study went deeper in  identifying issues such as divergence in terms of trade shocks, lack of export diversification, and predominance of inter industrial trade patterns.

Wit the use of panel date from UEMOA and non-UEMOA ECOWAS countries in order to determine whether the monetary union has brought price and output, fiscal and trade stabilization during the period 1990-2001, Anyanwu found that economic stability and growth was greater in the WAEMU countries than in the non- WAEMU countries during those years. The results of the study also showed that Inflation in the WAEMU region was higher than in the non-WAEMU region.

The gravity model of trade gives the impression of having substantial support towards monetary integration. Studies show that common currency increases trade threefold.

Basing the study on the theory of credible commitment, scholars have examined the impact of monetary unions on fiscal policies. In order for money unions to gain success, the common consent is that budget discipline and strict compliance to convergence criteria ought to accompany monetary unions. The theory of Agencies of Restraint to regulate governments in African countries resulted in a study where arguments were made that African governments can exhibit they credibility by voluntarily impeding themselves on the issues of monetary intervention, and as an alternative chose a fixed exchange regime. Other scholars highlighted that monetary union is able to create policy credibility only where countries strive to create adequate infrastructure to stifle government behaviour and foist and surveil compliance.

The theory of economies of scale shed light on the benefits associated with trade liberalization and the integration of African countries. Due to the small size of SSA economies, unification can be seen as a useful way to expand markers and increase the participation of said economies in the world economy. As a result, is these small economies of SSA were in a monetary union the relaxation of trade restrictions inside this region could reduce internal transport costs, stimulate intraregional trade, and ultimately increase the growth and productivity of member states.

In theory, trade is the key in creating a common currency area. Trade integration lays down the substructure of the transnational political economic infrastructure that is indispensable for an effective monetary union. Intraregional trade agreements can be embraced without the need to restrict monetary policy flexibility. In contract to monetary unions, trade unions allow members to enjoy shared benefits of privileged treatment without having to sacrifice the satisfactions of monetary policy autonomy.

Despite all these prospects that scholars have put in the spotlight for nation states to follow, trade unions in Africa have proven to show limited capacity of enhancing economic development. A study on ECOWAS, one of the poster chills for economic integration in Africa, shows that trade has not been promoted amongst ints members. Arguments against trade unions have been made as scholars challenge the policies implemented to increase intraregional trade because they are not particularly instrumental in solving the Africa growth problem . Unfortunately, even the earliest trade unions in Africa such as ECOWAS and COMESA, previously know as the Preferential Trade Area for Eastern and Southern African States, yielded no results in appreciable increases in formal intraregional trade.

Following from the above review that oversees what scholars and experts have to say about economic and monetary union in Africa, economic and monetary union can be viewed from four perspectives: These relate to the extent to which the cooperation arrangement stimulates the development of an agency of restraint to the government, the extent to which the arrangement deepens the financial system, the extent to which the arrangement reduces the probability of conjectural pressures, and the extent the arrangement deepens integration of economies, via the creation of a single economic area.

Based on the research conducted and my findings, I can conclude that the literature on regional integration is broad and more often than not conflicting. Nonetheless, it has offered cognizance on the major problems involved and dispensed a valuable foundation for analysis. 

Here we begin to focus on the regional integration arrangements that are currently present in Africa. Regional integration on the African continent has been part of Africa’s development agenda since the African nation states seemed independence in the post colonial period. The decolonization period of the 1960’s gave way to a number of regional integration initiatives. On Africa’s modern agenda of today, economic regional integration is pinned as one of the key strategies in the minimization of the unintended negative consequences of globalization on the continent, integration serves the purpose of growing African economies and reducing poverty throughout the land. A plethora of regional economic integration arrangements make up the economic composition of Africa today. On average, an African nation state belongs to at least three regional economic and monetary arrangements.

There are five paramount sub regional economic integration units that encompass all the African countries. These economic integration arrangements are: the Arab Maghreb Union (AMU); The Common Market of Eastern and Southern Africa (COMESA); The Economic Community of Central African States (ECCAS); The Economic Community of West African States (ECOWAS); and the Southern African Development Community (SADC).

In addition to these five paramount units, there are eight other regional integration arrangements that are subsets of the larger units mentioned above. These subsets include the Central African Economic and Monetary Community (CEMAC), a group of six countries of ECCAS; the Great Lakes River Basin (CEPGL), consisting of three members of ECCAS; the East African Community of COMESA, and SADC, the Indian Ocean Commission (IOC) grouping five countries, four of which are in COMESA and one of which (Reunion) is a dependency of France.

Others include the Intergovernmental Authority for development (IGAD); embracing seven countries in the Horn of Africa and the northern part of East Africa; the Mano River Union (MRU) with three countries all members of ECOWAS; the West African Economic and Monetary Union (UEMOA) comprising eight members of ECOWAS; and Southern Africa Custom Union (SACU), consisting of five member countries of the SADC; the West African Monetary Zone (WAMZ) comprising five members of ECOWAS countries, namely; The Gambia, Ghana, Guinea, Nigeria and Sierra Leone.

What follows is the attempt to appraise the African regional groupings against the proposed standard of the traditional OCA theory, we will also explore the economic performance of these major integration arrangements and evaluate their focus and objectives as well as their relevance in speeding up Africa’s development.

Here we shall attempt to situate the selected regional grouping within the broad structure of the OCA theory. Are African regional economic groupings OCA compliant?

Based on what the literature has given us, for a region to be OCA compliant a kew characteristic is price and wage flexibility. This will be the basis for the argument in favour of flexible exchange rates. A subsequent characteristic for OCA compliancy if that of market integration which suggests that a successful OCA needs to be tightly integrated in financial trading. Other characteristics include factor mobility, especially, capital and labour, and the integration of the goods market. As we saw previously, issues regarding symmetry and asymmetry shocks have given way for discussions. From what we can grasp, based on the quantitative and qualitative assessments, the monetary unions in Africa do not satisfy the text book OCA compliancy conditions where measured against the following criteria: income structure; product market flexibility; labour market mobility; degree of openness, intra-trade relations; and asymmetric terms of trade shocks.

When it comes to income structure the regional arrangements in Africa fall short of the mark. In almost every region, one or two countries depict higher development trajectories compared to the other member states. Let’s take a look at SADC, South Africa is the dominant economy, while Cote d’Ivorie is the dominant economy in the UEMOA, Nigeria is dominant both in the WAMZ and in the ECOWAS, Kenya in the EAC, etc. Therefore we can conclude that in Africa, just like in many other regions of the world, there s no homogeneity in the level of income.

When exploring market flexibility, it comes to no surprise that most countries in Africa and especially countries that surround the Gulf of Guinea, pivot on a limited number of primary commodities, in some cases these commodities account for as high at 87% of total exports. The level of manufacturing in African countries is low, like with the income the level of product diversification in countries inside their regional groupings varies disproportionally where some countries are at a higher level of product diversification that others. This is a clear reflection of the diversified income base amounts the African countries.

In regards to labour market mobility, we notice that the various regions are more often than not insular. Albeit in some regions such as ECOWAS, protocols such as the guarantee of free movement of persons within the sub region has been implemented. On the other hand, the protocol concerning residents and establishment, including the freedom to seek gainful employment has not yet been successfully implemented. In ECOWAS, non citizens are given a maximum of 90 days to stay and the permit clearly states that employment is prohibited. The existence of these obstacles have been the cause of limited labour mobility in ECOWAS, which is regarded as the most advanced sub regional integrated organization in sub Saharan Africa. Going off labour mobility, capital mobility is another requirement of OCA compliancy. It is obvious that financial markets in Africa have not yet been integrated. In almost all African regional arrangements there are still restrictions to capital movements due to most countries not being fully subscribed to the IMF article VIII requirements. Cross border trade and investments have become practically impossible due to the non convertibility of existing currencies. The problem lies also in the non existence of stock markets in most African countries. Even where stock markets exist the legal restriction to cross listing of stocks has obstructed progress on financial market integration. The exception lies in the WAEMU whee the common regional stock exchange is open to all the member states. Although the same cannot be said of the Nigerian or Ghanian stock exchange which are legally reserved for the nationals of those respected countries.

Due to the ratio of total tase to GDP, all regions to some extent have attained some level of openness regarding the degree of openness of the African regional integrated grouping. That being said there is still a low level of intraregional tase amongst the countries in Africa. To follow up it is relevant to point out that the perceived limited scope of intraregional trade is more apparent than real, this is due to the fact that the data on trade only captures the official statistic which vastly underestimate the real volume of trade in Africa because of the large vellum of activities that fall under the informal sector which data fails to record, by taking those into account then intraregional trade would most definitely be a lot higher. Even with all of that into account, the result does not differ all that much as the specialization of the countries in only a few commodities combined with the non complementarities in the products continues to thwart the volume of intraregional trade.

Studies of empirical value on the vulnerability if regional groupings in regards to trade shock have confirmed the differences in the size of terms of trade shocks facing the WAMZ countries. In the specific, the terms of trade shocks between Nigeria and the rest of the WAMZ countries of The Gambia, Ghana, Guinea, and Sierra Leone were found to be uncorrelated. Nonetheless, no evidence suggested that surrounding the use of  the nominal exchange rate by the WAMZ countries would impose additional costs to monetary unification, this is because the exchange rate has not significantly responded to real output and price shocks. Even though a full on analysis of the cost benefits has not been done, the initial findings propose that the costs of losing exchange rate flexibility in the WAMZ are limited. The suggestion of the convergence of underlying shocks in the counties in the long run can be accredited to the evidence of co integration of real exchange rates of the WAMZ countries.

The failure of African regional groupings not satisfying the OCA compliance criteria is not fatal. The reason being that the prescription of convergence criteria and the demand that member countries must meet them before the creation of the union constitutes as a safeguard that is intended to assist the African regional grouping to obtain OCA status ex post. On the same page, the institutional and structural infrastructure such as the payments system, the commercial law harmonization, the standardization of banking system regulate and etc  pursued by most African sub regional integrated groupings at the moment serves to ensure OCA compliance.

If we disregard Africa very quickly, we can debate the fact that it is very likely that no regional grouping in the world can attain OCA status ex ante. Take a look at the Euro and the European Union, today they are the success story of a monetary union and even they did not achieve OCA compliance status ex ante. A monetary union, anywhere in the world, is first and foremost given by political will with valid macroeconomic management in the background serving as the supporting actor in the situation. Hence, monetary unions in Africa can only be realized in the future though a manifestation of strong political will and a commitment by the would be participating countries to give up sovereignty on monetary policy. This can be seen with WAEMU who become OCA compliant ex post as a result of the monetary union instead of a it being OCA compliant as a prerequisite.That being said, faith is restored in the fact that the other regional integrated arrangements such as WAMZ, SADC, COMESA, etc could very well be on the way to becoming OCA compliant ex post if a supranational central bank urges them to meed the convergence criteria on a ex post basis rather than ex ante.

To recap what we discussed in this paper, there are a profusion of unfolding and operational economic and monetary unions existing in Africa. In the current state, today there are 15 regional integrated arrangements that exists with intersecting memberships. Five paramount groups encompass Africa, these regional integrated groups are the Arab Maghreb Union (AMU), the Common Market of Eastern and Southern Africa (COMESA), the Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC). Nevertheless, the majority of African countries overlap into one or more subset of the major regional groups. To paint the picture we can see that some countries in West Africa appertain to either UEMOA or WAMZ, which are subsets of ECOWAS; the same intersecting memberships are present in SACU and SADC as well.

These intersecting and overlapping arrangements eat way at the collective efforts driven towards the realization of the common goal that the African Union is attempting to achieve. Given the available quantitative and qualitative studies that were conducted, the African integrated regional arrangements do not satisfy the OCA compliance criterion on an ex ante basis when measured against the OCA standards of income structure, financial market integration, product market diversity, labour market mobility, development of intra trade transactions and ability to withstand terms of trade shock.

However, the perceivable failure in satisfying the OCA compliance criteria ex ante does not mandate a fatal blow to the efforts of integration that Africa pursues, in fact it is quite the contrary, this is because the OCA conditions can be me ex post. The famed European Union, which serves as the poster child for monetary union, met the conditions ex post. In order to meet these OCA conditions ex post, the nation states must present the political will, powerful institutions, and the strive towards sagacious macroeconomic policies as well as adherence to the preset convergence criteria. 

On a global scale, history has shown us that through strong political devotion at the highest level, together with the administration and execution of shrewd macroeconomic policies on perpetual basis constitutes to the required adequate success factors for the forging of monetary and economic unions.

The statistical evidence that is embodied in this paper divulges that expanded trade, macroeconomic stability measure by low rate of inflation and exchange rate stability as well as sustained growth and narrowing of fiscal balance have become ingrained in the regional integrated groupings that have soundly manifested their economic and money union arrangements.

Work Cited

Murithi, Timothy. The African Union: pan-Africanism, peacebuilding and development. Routledge, 2017.

Lybek, Tonny, and JoAnne Morris. Central bank governance: A survey of boards and management. No. 2004-2226. International Monetary Fund, 2004.

Chuku, Chuku. “The proposed eco: should West Africa proceed with a common currency?.” (2012).

Treaty, Abuja. “Treaty Establishing the African Economic Community.” Organisation of African Unity, Abuja, Nigeria, June (1991).

Ndulo, Muna. “Harmonisation of trade laws in the African Economic Community.” International & Comparative Law Quarterly 42.1 (1993): 101-118.

Ndikumana, Léonce, and James K. Boyce. “Measurement of Capital Flight: Methodology and Results for Sub‐Saharan African Countries.” African Development Review 22.4 (2010): 471-481.

Longo, Robert, and Khalid Sekkat. “Economic obstacles to expanding intra-African trade.” World Development 32.8 (2004): 1309-1321.

Chatellier, Jean-Yves, and Ann Slevin. “Review of African petroleum and gas deposits.” Journal of African Earth Sciences (and the Middle East) 7.3 (1988): 561-578.

Mbeki, Thabo. “Launch of the African Union, 9 July 2002: Address by the chairperson of the AU, President Thabo Mbeki.” ABSA Stadium, Durban, South Africa: africa-union. org (2002).

African Union Commission. “Sirte Declaration.” (1999).

Hove, Mediel. “Post-Gaddafi Libya and the African Union: Challenges and the road to sustainable peace.” Journal of Asian and African Studies 52.3 (2017): 271-286.

Lybek, Tonny, and JoAnne Morris. Central bank governance: A survey of boards and management. No. 2004-2226. International Monetary Fund, 2004.

Mundell, Robert A. “A theory of optimum currency areas.” The American economic review 51.4 (1961): 657-665.

Kaboub, Fadhel, et al. “Oeconomicus, Volume V, Fall 2001.”

Friedman, Benjamin M., and Michael Woodford, eds. Handbook of monetary economics. Elsevier, 2010.

McKinnon, Ronald I. “Optimum currency areas.” The American economic review 53.4 (1963): 717-725.

Kenen, Peter. “The Theory of Optimum Currency Areas, in Monetary Problems in the International Economy, ed. Robert Mundell and Alexander Swoboda. Chicago: University of Chicago Press.” (1969).

Frankel, Jeffrey A., and Andrew K. Rose. “The endogenity of the optimum currency area criteria.” The Economic Journal 108.449 (1998): 1009-1025.

McKinnon, Ronald I. “Optimum currency areas and key currencies: Mundell I versus Mundell II.” JCMS: Journal of common market studies 42.4 (2004): 689-715.

De Grauwe, Paul. “Monetary policies in the presence of asymmetries.” JCMS: Journal of Common Market Studies 38.4 (2000): 593-612.

De Grauwe, Paul. “The euro-dollar exchange rate in search of fundamentals.” Discussion Paper Series 00.17 (2000).

Devarajan, Shantayanan, and Jaime de Melo. “Adjustment with a fixed exchange rate: Cameroon, Côte d’Ivoire, and Senegal.” The World Bank Economic Review 1.3 (1987): 447-487.

Devarajan, Shantayanan, and Jaime De Melo. “Evaluating participation in African monetary unions: a statistical analysis of the CFA zones.” World Development 15.4 (1987): 483-496.

Guillaumont, Patrick, Sylviane Guillaumont, and Patrick Plane. “Participating in African monetary unions: An alternative evaluation.” World Development 16.5 (1988): 569-576.

Guillaume, Dominique M., and David Stasavage. “Improving policy credibility: is there a case for African monetary unions?.” World Development 28.8 (2000): 1391-1407.

Galy, Mr Michel, and Mr Michael T. Hadjimichael. The CFA franc zone and the EMU. No. 97-156. International Monetary Fund, 1997.

Bayoumi, Tamim, and Jonathan D. Ostry. “Macroeconomic shocks and trade flows within Sub-Saharan Africa: implications for optimum currency arrangements.” Journal of African economies 6.3 (1997): 412-444.

Fielding, David, and Kalvinder Shields. “Modelling macroeconomic shocks in the CFA Franc Zone.” Journal of Development Economics 66.1 (2001): 199-223.

Grandes, Martin. Macroeconomic convergence in Southern Africa: the rand zone experience. No. 231. OECD Publishing, 2003.

Anyanwu, John C. “Estimating the macroeconomic effects of monetary unions: the case of trade and output.” African Development Review 15.2‐3 (2003): 126-145.

Rose, Andrew K. The Effect of Common Currencies on International Trade: Where Do We Stand?. Financial & Special Studies Division, Economics Department, Monetary Authority of Singapore, 2002.

Frankel, Jeffrey, and Andrew Rose. “An estimate of the effect of common currencies on trade and income.” The quarterly journal of economics 117.2 (2002): 437-466.

Collier, Paul. “European Monetary Union and ‘1992’: Opportunities for Africa.” World Economy 15.5 (1992): 633-644.

Masson, Paul, and Catherine Pattillo. “Monetary union in West Africa: an agency of restraint for fiscal policies?.” Journal of African Economies 11.3 (2002): 387-412.

Oyejide, Ademola. “Trade policy and regional integration in the development context: emerging patterns, issues and lessons for sub-Saharan Africa.” Journal of African Economies 7.1 Supplement (1998): 108-145.

Hanink, Dean M., and J. Henry Owusu. “Has ECOWAS promoted trade among its members?.” Journal of African Economies 7.3 (1998): 363-383.

Okafor, Harrison Oluchukwu. “Estimating the costs and benefits of a common currency for the Second West African Monetary Zone (WAMZ).” Journal of Economics and Behavioral Studies 5.2 (2013): 57-68.

Collier, P. 1991. “Africa’s External Economic Relations: 1960-90.” African Affairs, July 90(360). 

African Development Bank. 2000. Economic Cooperation and Regional Integration Policy, Abidjan.

Engel, C. and A. Rose. 2002. “Currency Unions and International Integration.” Journal of Money, Credit, and Banking, November 34(4): 

Yeats, A.1998. “What can be expected from African Regional Trade Arrangements?” World Bank, Washington D.C.

More To Explore