President of the ECOWAS Commission Kadre Desire Ouedraogo speaks to media during the closing ceremony of ECOWAS heads of state ordinary summit on Febuary 28, 2013. Growth in the eight-nation West African Economic and Monetary Union will hit 6.5 per cent this year thanks to a post-crisis recovery in regional powerhouse Ivory Coast but governments need to press ahead with reforms, the Central Bank chief said. AFP
Growth in the eight-nation West African Economic and Monetary Union will hit 6.5 per cent this year thanks to a post-crisis recovery in regional powerhouse Ivory Coast but governments need to press ahead with reforms, the Central Bank chief said.
Speaking as part of a Reuters Africa Investment Summit, Tiemoko Meyliet Kone said strong commodities demand from emerging economies such as China and India would help the currency bloc shrug off the effects of an economic slowdown in Europe, traditionally its main trading partner. The currency bloc's $80 billion economy grew by 5.8 per cent last year as Ivory Coast - the world's largest cocoa producer - bounced back from a brief civil war, growing by 9.8 per cent. Ivory Coast's economy makes up over one-third of the bloc.
"Faced with the current slowdown in global growth, Africa is an important region for both emerging and developed economies," Kone said in an interview. "In 2013, the West African Monetary Union expects growth of 6.5 per cent despite the current difficulties in Mali and Guinea Bissau."
Gold- and cotton-producer Mali is mired in conflict as a French-led coalition battles to eliminate Islamist rebels which captured the country's north last year. Tiny Guinea-Bissau, meanwhile, is struggling to organize elections after a military coup last year, which froze crucial aid payments.
Kone appealed for regional governments to press ahead with reforms to trim deficits, improve transparency, invest in infrastructure and diversify their economies away from reliance on commodities such as cocoa, gold and iron.
Kone said the central bank, which cut its base lending rate to 2.75 per cent last month, also was pursuing schemes to encourage private-sector lenders to lower their own interest rates and increase the scant supply of credit, which the IMF has cited as a drag on West Africa's growth potential.
With regional governments having reduced their debt and deficits, thanks partly to the IMF and World Bank's Heavily Indebted Poor Countries' initiative (HIPC), Kone said their economies would continue to pick up speed.
"In 2014, growth should reach 7 per cent for the first time," he said. "But despite this potential and the promising outlook, African economies are confronted by important challenges."
The central bank, which has its headquarters in Dakar, serves Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal, Togo and Guinea-Bissau.
Need to improve governance
Kone said governments should take steps to secure regional peace, warning that conflicts had proven the main obstacle to Africa's economic development. He also called for an improvement in governance to ensure resources were dedicated to fighting poverty, and improving education and healthcare.
"We need to prioritize economic sectors with high value-added, like manufacturing and new technologies," he said. "This would reduce our economic dependence on exporting commodities."
Member states must improve infrastructure - particularly roads, energy and ports - to lower production costs and improve regional economic competitiveness, Kone said.
Whereas member countries had previously invested using their own budgetary resources, Kone said they must seek private partners to ease the burden on public finances. The region also needed to accelerate economic integration, he said.
"Integration allows increasing economies of scale and trade. Not all countries produce the same things nor have the same production potential," Kone said. "The political will is there for these reforms, it just remains to put them into action."
Kone said the bank was pursuing schemes to encourage more lending and lower interest rates by banks, which were often deterred by the risk of lending to individuals and small businesses amid scarce information over their creditworthiness.
As a result, interest rates often reach 7 to 8 per cent in the region, hindering businesses. The IMF noted in a report on the bloc last year that only 5 per cent of its population had bank accounts and lending to the private sector was less than 18 per cent of GDP, one of the lowest levels in sub-Saharan Africa.
"We must make banks rethink their arguments for not lowering rates," Kone said. "We're establishing mechanisms to better coordinate credit distribution and lower interest rates little by little."
He said the central bank was in talks with private sector lenders to establish credit bureaux, which would amass information on borrowers' creditworthiness, giving banks more visibility on who they were lending to.
The central bank was also considering compiling a database of all the guarantees offered by borrowers, to make these legally binding, thereby offering lenders more security.
A report by a panel of experts, approved by regional leaders last year, contained 43 proposals for increasing credit. Some of these have already been adopted, such as increasing the percentage of short-term deposits which banks can convert into long-term loans from 25 per cent to 50 per cent.
"It is quite possible that there are understandings between the banks and this contributes to keeping rates at a certain level," Kone said. "We've explained that high interest rates actually make it less likely loans will be paid back."
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