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Monetary Policy

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International Economic Cooperations

The Economic Community of West African States (ECOWAS)
The Economic Community of West African States (ECOWAS) was established on May 28, 1975. Sixteen (16) countries, namely, Benin, Burkina Faso, Cape Verde, Cote d’Ivoire, The Gambia, Liberia, Guinea Bissau, Guinea, Ghana, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo signed the ECOWAS Charter. Following the withdrawal of Mauritania in December 2000, membership dropped to fifteen (15). The major objective of ECOWAS is to establish a common market and create a monetary union. Its mission is to promote economic integration in “all fields of economic activity, particularly industry, transport, telecommunications, energy, agriculture, natural resources, commerce, monetary and financial questions, social and cultural matters ....."

ECOWAS as an economic and monetary union seeks to provide wider market for goods and services, encourage free movement of people, create employment, establish free trade zone with common tariff structure, allow for maximum allocation of resources and invariably reduce prices of goods.

ECOWAS has the following Institutions: the Authority of Heads of State and Government, the Council of Ministers, the Community Parliament, the Economic and Social Council, the Community Court of Justice, the Executive Secretariat and the ECOWAS Bank for Investment and Development (EBID). The Authority of Heads of State and Government of Member States is the supreme institution of the Community and is composed of Heads of State and/or Government of Member States. The Authority is responsible for the general direction and control of the Community and takes all measures to ensure its progressive development and the realization of its objectives. The Executive Secretariat which carries out most of the functions of ECOWAS is located in Abuja, Nigeria.

ECOWAS Single Currency

The 10 Convergence Criteria

1. Inflation is limited to single digit by 2003 and 5 percent by 2005


2. Budget deficit (excluding grants ) is not more than 4 percent of GDP at current market prices;
3. Central bank financing of fiscal deficits should not exceed 10 percent of previous year's tax revenue;
4. External reserves should cover not less than 3 months of current imports;
5. New arrears of import payments should not be accumulated while existing ones should be liquidated by 2003;
6. Tax revenue should not be less than 20 percent of GDP;
7. Wage bill should not be in excess of 35 percent of tax revenue;
8. Public investment financed by domestic resources should not be less than 20 percent.
9. Exchange rates should not move outside the prescribed ERM band of ±15 percent;
10. Positive real interest rates should be maintained.

SOURCE: ECOWAS Annual Report 2006

1. Unprocessed goods which include fish, plant or minerals which have not undergone industrial transformation.
2. Traditional handicraft products which include products made by hand with or without the use of tools or machineries such as wood, articles of wood, basket works, carpet mats, lace embroidery etc.
3. Industrial products.

• The scheme encouraged local manufacturing to compete favorably with cheap imported products.
• The ETLS encourage entrepreneurial development.
• With ETLS, exporters from Nigeria have larger markets for their products.
• ETLS has the potentials for reducing unemployment rate in member states.
  

• Lack of legal status hence the charging of full duties by Custom Authorities.
• Barriers to movement of goods due to road blocks at border posts.
• Lack of adequate awareness and sensitization of the scheme, hence inability of companies to tap fully its opportunities.
• Rejection of some products by member states from total tariff exemption even after admission of companies to the scheme.

Table 1       

Number of WAMZ Companies and products registered under the ETLS as at June 2006

Source: Nigeria Customs Service

Table 2

Compensation due to Nigeria on ECOWAS Trade Liberalization scheme in Naira

Source: ECOWAS

• A Tariff and Statistical Nomenclature (TSN); and
• A table of duties and taxes applicable to third country products.

Visit the ECOWAS website - http://www.ecowas.int/

The Second West African Monetary Zone’s (WAMZ)
The Economic Community of West African States (ECOWAS) has the objectives of establishing a common market and create a monetary union. To achieve these, the ECOWAS Monetary Cooperation Programme (EMCP) requires member countries to undertake economic reforms to achieve some common economic targets known as convergence criteria. However, owing to the fact that the Francophone countries already have in existence a West African Monetary Union known as UEMOA, which they regard as more superior, the dichotomy between the Francophone and Anglophone countries was further entrenched. To meet this challenge, the Anglophone countries, through the initiative of Nigeria and Ghana, proposed a fast track to monetary integration for its member countries. Thus, on December 15, 2000, Nigeria, Ghana, the Gambia, Sierra Leone, Liberia and Guinea (a French speaking country) established the West African Monetary Zone (WAMZ) as the second monetary zone in the ECOWAS. The major objective is to facilitate rapidly the achievement of a WAMZ monetary union with a common central bank and a single currency for eventual merger with the UEMOA under the ECOWAS.

The programme of activities for the realization of the EMCP include, the requirement to achieve the convergence criteria, such as a single digit inflation of less than 5 per cent, budget deficit /gross domestic product (GDP) of less than 4 per cent, central bank financing of government budget limited to 10 per cent of previous year’s tax revenue, gross external reserves should finance not less than 3 months import cover. Other secondary criteria are the prohibition of new domestic debt arrears and liquidation of existing ones; tax revenue to GDP, wage bill/tax revenue and public investment/tax revenue should not be less than 20, 35 and 20 per cent respectively; maintaining real exchange and interest rates.

Of the primary convergence criteria, Nigeria’s inflation rate in 2005 was 11.6 per cent which was higher than the target of 5.0 per cent, while the budget deficit to GDP was 1.1 per cent which is lower than the 4.0 per cent prescribed. There was no central bank financing of deficit, while months of imports cover stood at 19.7 months, above the 3 months stipulated. Overall, with the exception of inflation rate, Nigeria met other 3 major convergence criteria.

Other programmes include the establishment of payments system, exchange rate mechanism, adoption of ECO as the new common currency and multilateral surveillance of performance of member countries. To drive the WAMZ programmes, there are a number of institutions and organs. The organs in the Zone comprise the Heads of States and Government of member countries, forum of Ministers of Finance, Committee of Governors of Central Banks and the Technical Committee of Experts. Major institutions include the West African Monetary Institute (WAMI), which facilitates the realization of the union; National Sensitization Committees; and the proposed establishment of the Stabilisation and Cooperation Fund (SCF), the West African Supervisory Authority (WAFSA), the West African Central Bank (WACB) and the WAMZ Secretariat. The monetary union was scheduled to commence in 2003, however, owing to the poor performance of member countries in achieving most of the programmes, this has severally been postponed to 2004, 2005 and now to December 1, 2009.

The West African Monetary Institute (WAMI)

What is The West African Monetary Agency (WAMA)?

The West African Monetary Agency (WAMA) is an autonomous specialized agency of the Economic Community of West African States (ECOWAS). In 1996, the West African Clearing House (WACH) which was established in 1975 as a multilateral payment facility to improve sub-regional trade in West Africa was transformed into a broad based autonomous agency called the West African Monetary Agency (WAMA). WAMA's Headquarters was officially inaugurated on the 28th November 1996.

Mandate
WAMA was empowered to ensure the Monitoring, coordination and implementation of the ECOWAS monetary cooperation programme, encourage and promote the application of market determined exchange rates for intra-regional trade, initiate policies and programmes on monetary and economic integration and ensure the establishment of a single monetary zone in West Africa.

Location
Upon the transformation of WACH into WAMA, WAMA took over the assets and liabilities of the West African Clearing House. Apart from the headquarters that is located at 11&13 Ecowas Street, Freetown, WAMA also has two residential houses in the West End of Freetown.

Membership
WAMA is comprised of the eight Central Banks of the West African sub-region. These include: BCEAO (Banque Centrale des Etats de l'Afrique de l'Ouest), Bank of Cape Verde, Central Bank of the Gambia, Bank of Ghana, Central Bank of Liberia, Central Bank of Nigeria and Bank of Sierra Leone. These central banks serve fifteen out of the sixteen countries of the West African sub-region with Mauritania being the only one out of the union.

Financial Resources
The Agency's financial resources are derived from annual contributions from member Central Banks and such other sources as may be approved by the Committee of Governors. Resources for the WAMA budget are derived 40% from equal contributions of member Central Banks, and 60% on the basis of the ratio used by ECOWAS in fixing each Member State's contribution to the ECOWAS budget.

Organs
The administrative organs of the West African Monetary Agency are:

• The Committee of Governors, which includes the governors of all ECOWAS Central Banks it advises the Council of Ministers and the Authority of Heads of State and Governments of ECOWAS Member States. This Committee also supervises the activities of the Agency and ensures that subject to the treaty of ECOWAS, the objectives of the WAMA’s Articles of Agreement are achieved.
• The Economic & Monetary Affairs Committee that comprises the Directors of Research of member Central Banks. This Technical Committee is appointed by the Committee or Governors to review, evaluate, and monitor progress in the implementation of the ECOWAS Monetary Cooperation Programme.
• The Operations and Administration Committee that comprises Directors of Foreign Operations of member Central Banks is a Technical Committee appointed by the Committee of Governors to review the functioning of the West African Monetary Agency.
• The Directorate of the Agency comprises the Director-General who is appointed by the Committee of Governors to coordinate, supervise and control the activities of the Directorate in accordance with the decisions of the Committee of Governors. The Director General is assisted by such Directors and Staff as the Committee of Governors may determine.

Visit the WAMI website - http://www.wami-imao.org/

The West African Monetary Agency (WAMA)
WAMA being an organ of ECOWAS makes it necessary that both ECOWAS and WAMA participate in mutually relevant meetings. Meeting reports and other relevant documents are also mutually exchanged between WAMA and ECOWAS. WAMA also maintains close collaboration with other international organizations like the International Monetary Fund (IMF), African Development Bank (ADB), Bank of International Settlement (BIS), Association of African Central Banks (AACB) and the World Bank.

Function
In order to achieve these objectives, the Agency performs the following functions:

• Define policies and programmes to promote monetary and fiscal harmonization and cooperation in the sub-region.
• Operate the Credit Guarantee Fund mechanism & Travellers Cheque scheme
• Prepare periodic reports on exchange rates, fiscal & monetary harmonization, trade and exchange control liberalization, balance of payments, and other monetary cooperation issues
• Collect, store and disseminate statistical information for member Central Banks and related institutions in West Africa
• Undertake relevant studies on matters relating to sub-regional economic integration.

Achievements

• WAMA has contributed to sustaining the West African Unit of Account (WAUA), which is an integral part of the sub-regional payment system adopted by member countries to settle financial transactions between them without involving their scarce foreign reserves.
• WAMA has contributed to the creation and circulation of the ECOWAS Travellers’ Cheque.
• WAMA has maintained a good Clearing and Payment System among member Central Banks in West Africa. In this respect, WAMA has been working with the West African Bankers Association (WABA) to harmonize payment systems in the private sector of the sub-regional economies.
• WAMA has contributed to the realization of the Second Monetary Zone which is expected to launch a Common Currency for the non UEMOA member countries of ECOWAS.
• WAMA is also spearheading a monetary integration programme that will lead to a single monetary zone for West Africa in the near future.
• WAMA operates a Credit Guarantee Fund Scheme for ECOWAS member Central Banks.
• WAMA is also coordinating the Harmonization of Policies on Exchange Rates, Banking Laws, Statistics and Payment Systems in the sub-region.

Visit WAMA website - http://www.wama-amao.org/

The West African Institute for Financial
and Economic Management (WAIFEM)

The West African Institute for Financial and Economic Management (WAIFEM) was established on July 22, 1996 by the constituent Central Banks of The Gambia, Ghana, Liberia, Nigeria and Sierra Leone became operational in January, 1997. The principal objective of the Institute is to build capacity for macroeconomic and financial management in the countries of its member central banks. The Institute is located in Lagos, Nigeria.

At the apex of the organizational structure of the Institute is the Board of Governors, consisting of the Governors of the member central banks. The Board appoints a Director General who is responsible for the day-to-day management of the Institute and doubles as Secretary to the Board. The Technical Committee consists of representatives of central banks and ministries of finance. It assists the Board of Governors by setting its agenda and preparing the presentations to be discussed by the Board.

The major functions of the Institute are to sponsor or conduct seminars, training courses and consultative fora on central banking and macroeconomic issues; support, design and implement programmes for the training of suitably qualified staff from the region; publish and disseminate information on central banking and macroeconomic policies in the region; identify, design and promote networks of researchers, analysts, managers and professional associations; and collaborate with national, bilateral and multilateral training or other institutions consistent with the objectives of WAIFEM. The Institute's programmes are targeted at senior/executive level officials of central banks, ministries of finance, ministries of economic planning, public sector agencies involved in macroeconomic and financial policy formulation and management and relevant private sector institutions. As at end of 2004, WAIFEM had executed 142 capacity building programmes involving 4021 participants of which 1905 of them were from Nigeria.

Visit the AFDB website - http://www.afdb.org/
Visit the AACB website - http://www.aacb.org
Visit the World Bank Website - http://www.worldbank.org
Visit WAIFEM website - http://www.waifem.org/
Visit the ECOWAS website - http://www.ecowas.int/
Visit the WAMI website - http://www.wami-imao.org/
Visit WAMA website - http://www.wama-amao.org/
Visit NEPAD website - http://www.nepad.org/
The IMF website - http://www.imf.org
Read Frequently Asked Questions (FAQs) on Monetary Policy