Aide-Memoire and Programme

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Economic Commission for Africa

Ad-Hoc Expert Group Meeting and Workshop on the Feasibility of Monetary Unions in African Regional Economic Communities

Aide-Memoire and Programme

8-10 October 2002

Novotel Hotel, Accra, Ghana

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I. Objectives

The Ad-hoc Expert Group Meeting on the "Feasibility of Monetary Unions in African

Regional Economic Communities" will be held in Accra, Ghana, from the 8th to the 10th of

October 2002. The main objective of the meeting is to create an opportunity for academics and policy makers to discuss the case for and against the formation of monetary unions in African regional economic communities. The meeting will also provide policy makers in Africa with a balanced view of the implications of the establishment of a common currency for the attainment of domestic macroeconomic policy objectives.

II. Background

In the last five decades, African countries have experimented with different exchange rate and monetary policy regimes: currency boards; fixed exchange rates; dual exchange rates; managed-floating; etc. However, there has not been any marked improvement in living standards on the continent This disappointing economic performance, coupled with the successful launching of the Euro in 1999, has rekindled interests in the establishment of monetary unions in African regional economic communities and led to calls for a re-examination of exchange rate regimes on the continent with a view to finding out whether they are sources of development failure or instruments for success.

In April 2000, heads of state of six West African countries — Nigeria, Ghana, Guinea, Liberia, Sierra Leone, and the Gambia — agreed in Accra to set up a single currency by 2003. It is expected that the new currency will be merged with the CFA franc in 2004. There are also plans by countries in Eastern and Southern Africa to set up a common currency by 2020.

Despite the strong interests in the formation of monetary unions in Africa, not much theoretical or empirical work has been done to ascertain whether or not a monetary union is a feasible and/or the optimal exchange rate regime for the countries in the region. This is a very serious limitation because, as is well known, economic policy decisions that are not based on either a sound theoretical framework or empirical evidence, are likely to have undesirable consequences. The proposed Ad-hoc Expert Group Meeting will overcome this limitation by providing a forum for experts from different parts of the world to discuss and exchange ideas on various aspects of monetary integration in Africa.

Recommendations from the meeting are expected to help African policy makers take informed decisions on whether or not a monetary union is desirable for African regional communities. It will also shed some light on the challenges as well as the prerequisites for a successful monetary union in Africa.

A background paper is being prepared for the meeting by the macroeconomic growth team in the Economic and Social Policy Division of the ECA. This document, together with

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contributions by experts from various institutions, will be made available to participants at the meeting in the language in which they are received. Papers to be presented at the meeting will adopt either a theoretical or an empirical methodology and will be published in a special issue of the Journal of African Economies, which is a publication of Oxford University, England. This will ensure that the information is available to a wider audience.

III. Participation and Format of the Meeting

The proposed meeting is to be organized by the Macroeconomics and Growth Team in the Economic and Social Policy Division (ESPD) of the Economic Commission for Africa (ECA). However, representatives from the OECD Development Centre, the African Union (AU), the African Development Bank (ADB), the West African Monetary Institute (WAMI), the International Development Research Centre (IDRC), the International Monetary Fund (IMF), the World Bank, the Brookings Institution, the European Central Bank, Ministries of Finance and Central Banks in selected African countries, and the Regional Economic Communities are expected to participate in various capacities.

The meeting will be held over three days and will be organised around the following sub- themes:

• Theoretical Aspects of Exchange Rate Regimes

□ Issues to be addressed under this sub-theme include: a review of exchange rate regimes in Africa as well as developments in the theory of optimum currency areas; and welfare-based models of the consequences of alternative exchange rate regimes in Africa.

• Regional Co-ordination and Surveillance

□ A multilateral surveillance framework for Africa will be presented. Emphasis will be on the use of regional co-ordination mechanisms among monetary and fiscal authorities to prevent the spread of national crises to other countries

• Evidence on the Feasibility of Monetary Unions in Africa

□ Empirical evidence for, or against, the formation of monetary unions in three African Regions—West Africa, East Africa, and Southern Africa—will be presented

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Fiscal Policy Issues

a The link between monetary unions and fiscal policy will be examined to ascertain whether or not the establishment of monetary unions in Africa will enhance fiscal discipline

Monetary Union and Macroeconomic Performance

a A panel discussion will be held to determine whether or not the formation of monetary unions in Africa will improve economic performance in the region Lessons from Existing Monetary Unions

□ The experiences of two existing monetary unions — the CFA Zone and the EMU — will be presented and lessons from these varied experiences will be discussed.

The Way Forward

□ This sub-theme will focus on the Recommendations of the meeting.

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IV. Programmme of Activities

6-7 October 2002 ARRIVAL

8 October

8:30 - 9:30 Registration

9:30 - 10:00 Opening Ceremony

Opening Address by the Executive Secretary of ECA or his representative

Policy Co-ordination and Surveillance

Chairperson: Patrick Asea, ECA, Addis Ababa

10:00 - 10:30 Session 1: Towards an African Multilateral Surveillance Framework Presenter: Jorge Braga de Macedo, OECD Development Centre, Paris

10:30-11:00 Discussion

11:00 - 11:15 Coffee Break

Theoretical Aspects of Exchange Rate Regimes

Chairperson: Joseph Abbey, Centre for Policy Analysis, Accra

11:15- 12:00 Session 2: Review of the Theory of Optimum Currency Areas and Exchange Rate Regimes in Africa

Presenter: Oliver Paddison, ECA, Addis Ababa 12:00 -12:30 Discussion

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12:30 - 14:30 Lunch Break

14:30-15:00 Session 3: Welfare Effects of Monetary Union and Flexible Exchange Rate Regimes in the Economic Community of West African States (ECOWAS)

Presenter: Patrick Osakwe, EGA, Addis Ababa 15:00 - 15:30 Discussion

15:45 -16:15 Session 4: Monetary Union in West Africa: Incentives and Constraints

Presenter: Paul Masson, Brookings Institution and IMF, Washington DC

16:15 - 16:45 Discussion

9 October

Evidence on the Feasibility of Monetary Unions in Africa Chairperson: M. O. Ojo, West African Monetary Institute, Accra

9:00 - 9:30 Session 5: Feasibility of Monetary Union in West Africa Presenter: Mahamudu Bawumia, Bank of Ghana, Accra 9:30 - 10:00 Discussion

10:00- 10:30 Session 6: The East African Shilling Redux? Bayesian Vector Auto- regression Tests for Optimal Currency Areas

Presenter: Patrick Asea, ECA, Addis Ababa 10:30-11:00 Discussion

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11:15-11:45 Session 7: Panel Data Evidence on Inflation and Exchange Rate Convergence in the Southern African Development Community:

Implications for a Monetary Union

Presenter: Terence Agbeyegbe, City University of New York, New York

11:45 - 12:15 Discussion 12:15 - 14:15 Lunch Break

Fiscal Policy Issues

Chairperson: Patrick Osakwe, ECA, Addis Ababa

14:15 - 14:45 Session 8: Monetary Union and Fiscal Policy in Africa

Presenter: Paul Masson, Brookings Institution and IMF, Washington DC

14:45 - 15:15 Discussion 15:15 - 15:30 Coffee Break

Monetary Union and Macroeconomic Performance

Chairperson: Kwabia Boateng, ECA, Addis Ababa 15: 30 - 16:15 Pane! session

Speakers:

> Yassin Elnil, African Union, Addis Ababa

> John C. Anyanwu, African Development Bank, Abidjan

> Ernest Addison, West African Monetary Institute, Accra

> A representative of the Central Africa Economic and Monetary Community (CAEMC)

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10 October

Lessons from Existing Monetary Unions

Chairperson: John Hawkins, Bank for International Settlements, Basle

9:00-9:30 Session 10: European Experience with Monetary Union: Lessons for Africa

Presenter: Francesco Mazzaferro, European Central Bank, Frankfurt

10:15 - 10:45 Session 11: Monetary union in the CFA zone: An Evaluation Presenter: Jean Thisen, ECA, Addis Ababa

10:45 -11:15 Discussion

The Way Forward

Chairperson: Yousif Suliman, ECA, Addis Ababa

11:15 - 13:00 General session to work on recommendations 13:00 - 15:00 Lunch Break

15:00 - 16:30 Discussion of Recommendations 16:30 - 16:45 Adoption of Recommendations 16:45 - 17:00 Closing Remarks

11-12 October DEPARTURE