Mr Charles Konan Banny, Governor of BCEAO:

Question 1 :

At WAEMU's 9th summit conference in December 2000 in Bamako, Mali, you launched the concept of « ninth economy ». What should be done in real terms for the West African Economic and Monetary Union to become, as you desire, a genuine regional economy ?

Answer :

Let me recall briefly that the Treaty establishing WAEMU adopted in 1994 and the plan of Action designed by the Highest Authorities of the States of the Union in 1996 provide for the creation of a single sub-regional market and lay the foundations for a dynamic and integrated regional economy.

However, it should be noted that despite the progress achieved, on the one hand, in unifying markets, through the setting up of a customs union and a regional capital market, and on the other, the rehabilitation of the macroeconomic and regulatory framework, the Union's economic performances have remained moderate in relation to the challenges WAEMU member States have to face up. As a matter of fact, the GDP real growth rate reached 2.9% in 2001, showing a sign of improvement compared to that of 0.9% recorded in 2000, but standing below the requirements dictated by the fight against poverty. In another connection, trade between the States of the Union accounted for about 12% of global trade within the zone.

This situation confirms the fact that in a context of regional integration, by simply juxtaposing economies characterised by a weak complementarity of their productive base and their inadequate basic economic and social infrastructures (in terms of quality and availability), one cannot create a common market that is dynamic and likely to promote growth.

Therefore, the ninth economy, which goes by the spirit and letter of the WAEMU Treaty signed by member States in January 1994, should favour the emergence of a competitive regional economy, its efficient integration into the globalisation process and the achievement of strong and sustainable economic growth.

To reach this objective, emphasis should be notably laid on infrastructure development (energy, transport, communications, etc), human capacities building and the effective exercise of the four liberties provided for by Article 4 of the Treaty, that is the free movement of people, goods and services, and capital and the right to settle within the Union.

Furthermore, in order to create an economic space going beyond national frontiers, the States and private sector should adopt convergent initiatives and attitudes.

Indeed, economic actors should play an active role, as driving forces, in implementing the changes expected in this field, by giving their strategies and actions a regional scope, through partnership and alliance initiatives.

Question 2 :

Still, in the field of African integration, what can be BCEAO's contribution to the implementation of the New Partnership for Africa's Development (NEPAD) ?

Answer :

NEPAD is an initiative designed by Africans themselves. It structures the vision of the Highest Authorities on the process to be followed to help each and all African countries achieve sustainable growth and durable development. It should therefore permit to create the conditions likely to favour rapid poverty reduction and a better integration of the continent into the world economy, so as to put them in a better position on the international scene.

Considering the goals assigned to NEPAD, you will agree with me that BCEAO, which, besides the mission it fulfils as a central bank, provides assistance to WAEMU eight member States in defining and implementing their economic policies, fully adheres to this continental ambition.

BCEAO already plays an essential role in the monetary integration process within the Economic Community of West African States (ECOWAS) and thereby contributes to consolidate an important component for the achievement of the goals pursued by NEPAD; in this respect, thanks to its wealth of experience in the field of monetary and financial integration, it has in particular proposed, the drafting of a genuine convergence program of macroeconomic policies and performances, a necessary prerequisite for the establishment of a viable sub-regional monetary union.

Beyond the West African region, BCEAO is working on reactivating the Association of African Central Banks (AACB) in order to reinforce financial, monetary and banking co-operation and ensure the stability of the financial sector at the continental level, which is an essential component of NEPAD.

Question 3 :

African populations, notably those in the west African region are becoming increasingly poor. According to you, how could the efficiency of currently implemented debt poverty reduction strategies be enhanced ?

Answer :

Poverty is a multifaceted plague. In its economic dimension, it illustrates notably the lack of financial resources and of access to basic social services. In its social dimension, it reflects how individuals perceive their incapacity to meet their social obligations. But, generally speaking, poverty can be summed up in one word : "exclusion". It is the result of weak economic performances that do not permit to fight efficiently against this plague. To illustrate this, I will mention that in WAEMU, the average annual income per capita stands at around CFA F 240,000, which is a bit less than one (1) dollar per day, whereas one-third of the population is underfed.

In order to eradicate poverty for good in Africa and in particular in the West African Economic and Monetary Union, strong, sustainable and fair growth must be achieved in a stable macroeconomic framework both at the national and regional levels. Beyond the efforts already made by the States to monitor the progression of the various items of public expenditure, investment expenditures should be increased and distributed more efficiently and in priority to health, education and basic infrastructure sectors.

For me, debt reduction strategies should be primarily based on political and economic good governance, consistent assistance from the international community, the completion of regional integration, support to private initiative, in short, the realisation of the New Partnership for Africa's Development.

Specialists in poverty issues admit that if the poor become more self confident in their own future and find the means to contribute to the development process within the limits of their capacities, the economic situation will change very rapidly in developing countries. It is in this perspective that BCEAO, drawing lessons from successful experiences in other regions, has recently launched an initiative aimed at establishing a mechanism for the financing of activities likely to generate income for the poorest populations in the Union, through the creation of a Regional Solidarity Bank (BRS). This bank will put at the disposal of underprivileged people an adequate volume of funds with relatively low interest rates.

Question 4 :

Mr Governor, the international financial community has engaged in a huge struggle against dirty money. Would you tell us about the measures taken by BCEAO to participate in the fight against money laundering ?

Answer :

Money laundering and terrorism financing are indeed two major concerns for monetary authorities, particularly since the 11 September 2001 events.

For their part, the authorities of the West African Economic and Monetary Union (WAEMU) are seeking to ensure that the banking system is not used for money laundering purposes by reinforcing control procedures in force and since 1999, they have taken decisive actions that should lead to the establishment of a regulatory framework for the fight against money laundering at the regional level.

First of all, a sub-regional sensitisation seminar on laundering issues was organised in July 2000. On the basis of the conclusions and recommendations of this seminar, the WAEMU Council of Ministers, at its session on 14 September 2000 in Bamako, Mali, urged BCEAO to propose, in collaboration with the WAEMU Commission, a draft common legislation on laundering. In this respect, BCEAO has prepared a draft Directive on the fight against money laundering in WAEMU member States.

Then, in the process for the adoption of this Directive, a validation seminar was organised at BCEAO Headquarters in Dakar, Senegal, on 7-8 February 2002. Following participants attended this meeting : Representatives of the Union's concerned administrations (Minister of Finance, Minister of Justice, Minister of Security), the financial sector (Banks and Financial Institutions Trade Associations), monetary Authorities in charge of preserving the financial sector's integrity, the WAEMU Commission, the representative of the intergovernmental group of action against money laundering in Africa (GIABA in French), the representative of the United Nations Drug Control Program (UNDCP) and partners of the Franc Zone. These deliberations revealed the existence of convergent views on most provisions of the draft Directive which were considered as complying with international standards, notably those spelt out by the financial group of action on laundering (GAFI in French). Relevant recommendations were made in order to enhance the overall coherence of the text and facilitate the smooth and uniform integration of this legislation into the national legal system of WAEMU member States.

Regarding terrorism financing, a draft common rule to freeze terrorist associations' funds is currently under preparation, to implement notably UN resolutions on this issue.

The draft Directive on money laundering and the common regulation on the freezing of funds used to finance terrorist activities will be submitted to WAEMU instances for adoption in 2002.

Lastly, following the adoption by the European Commission of the Regulation n° 1354/2001 of 4 July 2001 aimed at freezing the funds belonging to certain persons, entities and bodies having relations with terrorist activities, BCEAO has implemented some protective measures. In a first stance, they consisted in identifying the accounts belonging to the aforesaid persons and bodies and opened in the books of banks in our zone. Fortunately, the investigations undertaken in all States of the Union have revealed that no bank keeps accounts belonging to terrorist bodies referred to in the said Regulation.

Question 5 :

Mr Governor, Canada has already established co-operation relations with BCEAO in the framework of the PARMEC, the support program for the regulation of credit unions. Are you satisfied with this co-operation and what are you planning to do in order to extend it to other areas ?

Answer :

Co-operation between Canada and BCEAO in the framework of the PARMEC started in June 1992. Ten years later, the assessment we make is quite positive. Therefore we envisage to extend it beyond December 2002 according to new modalities taking into account the results obtained.

This assessment will be based on three points. First, the objectives assigned to PARMEC, then the intervention methodology and lastly the transfer of competencies.

As far as objectives are concerned, the PARMEC helped design one of the first legal frameworks dedicated specifically to micro-finance in the sub-region and this experience has inspired several initiatives in the field of regulation in Africa. As regards the content of regulatory texts, their flexible provisions enable various institutions to provide financial services to populations neglected by banks and financial institutions. The relevance of the orientations given is confirmed by the large adherence of people to micro-finance institutions, as shown by the strong progression of transactions over the period 1992-2001.

As a matter of fact, nowadays, 4.5 million persons make financial transactions at some 3,000 points of services offered by decentralised financial systems throughout WAMU member States. Through this channel, almost CFA F 140 billion representing savings on loans, were distributed for the financing of activities notably in the trade, agriculture and craftsmanship sectors.

At the beginning of the program in 1992, the number of beneficiaries was of 400,000 persons and their transactions in terms of resource deposits and loans mobilisation amounted to CFA F 12.7 and 17.9 billion, respectively.

Concerning the PARMEC intervention methodology, the great emphasis put on the process of permanent consultation with all actors permitted to constantly adapt their working program to their expectations.

As regards competence transfer, about two thousand (2,000) persons were reached in the framework of training, information or sensitisation actions. Thus, we are planning, with a view to pursuing co-operation between Canada and BCEAO and taking into account the development of local expertise since 1992, to cut down the resources dedicated to technical assistance so as to increase direct interventions intended for populations.

The pursuance of this fruitful co-operation started in 1992 will be focused on the consolidation of the results achieved in the field of grassroots finance but also on the establishment of a secure and modern financial sector in areas where convergent interests will be possibly identified.

Question 6 :

The weaknesses of WAEMU payment systems and media are part of the obstacles hindering sub-regional integration. To what extent can the project initiated by BCEAO in this field and for which you signed a financing agreement with the World Bank, lead banks to play a more dynamic role in an integrated development of WAEMU capital market ?

Answer :

The low efficiency of payment systems in WAEMU impedes the efforts aimed at creating a capital market and a public securities market at the regional level. Despite the efforts made for the construction of a monetary and economic zone meeting the aspirations of WAEMU member States, markets in the zone remain fragmented and progress towards a genuine economic and financial integration is slow. Therefore we admit that the risks and delays affecting intra &endash; regional payments notably, constitute a major element which impedes an integrated development of WAEMU capital markets.

As a matter of fact, the combination of two factors account for the low development level of cross-border markets :

• on the one hand, the average time required for the settlement of cross-border payment is one week, which is not compatible with the time limit in practice on the regional market. In addition, the float induces a loss of profit for all financial markets actors.
• on the other hand, bankers in the region, who often limit their cross-border counterparts to banks belonging to the same group, consider risks as important.

Thus, cross-border transactions are primarily used to cover the account position with correspondents.

The main consequence is a loss profit for the whole banking profession, in so far as structurally over-liquid markets cannot participate in normal conditions to the day-to-day refinancing of other markets.

Therefore, the modernisation of payment currently under way is a requirement for reinforcing the restructuring of our economies, the development of the financial system and the emergence of genuine capital markets at the regional level.

It is aimed at enhancing the integration of WAEMU money, interbank and financial markets. To reach this objective, it will be necessary to eliminate the obstacles hindering this integration by:

• ensuring the financial security of exchanges,
• reducing the time required for settlement,
• increasing efficiency in payment transactions processing,
• reducing payment risks.

Therefore, the reform will help increase the liquidity of capital markets in the region and will thereby reduce in the long run credit cost for all economic actors.

By reinforcing the payment processing infrastructure in the zone, it also aims at improving monetary policy management and transmission mechanism.

It is focused on three major points:

• the modernisation of the exchange and settlement system for large value payments with the establishment of a real time gross settlement system for systemically important payments, notably cash transfers, fund transfers, money market transactions, settlement of stock market transactions, settlement of public debt,
• the modernisation of the exchange and settlement system for low value payments, namely bulk payments : transfers, checks, bank cards, with the launching of an automated multilateral clearing system,
• the development of an interbank card based payment system at the regional level to be established by the banking sector.

On the whole, the reform under way includes two major complementary aspects:

• the establishment of a safe, rapid and efficient payment infrastructure in the region, which permit real time ownership transfer between banks, including cross border trade within WAEMU,
• the creation of conditions likely to increase financial security of capital markets transactions by creating the required legal framework, through the definition of instruments aimed at securing operations on the regional interbank market.

These two measures should help increase the liquidity of capital markets in the zone and thereby reinforce their financial security.

Therefore, this new framework should enable banks in the region to play a more dynamic role in the integrated development of WAEMU financial markets.

Question 7 :

Mr Governor, BCEAO celebrates this year the fortieth anniversary of its creation. What are the major stages in the evolution of the Central Bank of West African States ?

Answer :

Here, a distinction should be made between developments in the institutional field and developments in the monetary policy area.

At the institutional level, the West African Monetary Union was created by the Treaty of 12 May 1962, to which are appended the Statutes of the Central Bank of West African States, the common central bank of the member States of the Union. This Treaty which came into force on 1 November 1962 was first concluded between Côte d'Ivoire, Benin (formerly Dahomey), Burkina (formerly Upper Volta), Mauritania, Niger and Senegal. Togo, who was not a party to the Treaty, adhered to WAMU on 27 November 1963. Malian Authorities signed the Treaty but did not ratify it in 1962. Mali joined WAMU on 1 June 1984. Mauritania withdrew from the Union on 9 July 1973. More recently, on 27 May 1997, Guinea-Bissau adhered to WAMU.

By formally constituting this monetary union upon gaining independence, the founding countries wished to pursue and reinforce the solidarity bonds which linked them in the monetary field under French colonisation.

In 1973, that is after eleven years of operation, it appeared necessary to adapt the monetary policy and institutions of the Union to the requirements of member States economic development. This vision led the States to initiate an institutional reform whose major objectives are to :

• ensure a more active participation of monetary policy in the development and economic integration of member States;
• promote the africanisation of the central bank staff;
• enable the Central Bank to carry out more efficiently its functions by further decentralising its activities to the benefit of Branches and National Credit Committees.

This reform was crowned, on 14 November 1973 by the signing by WAMU member States of a new Treaty to which are appended the Statutes of the Central Bank of West African States signed on 4 December 1973.

As far as monetary policy is concerned, it should be recalled that in 1989, BCEAO moved from an administered management of interest rates and credit to the economy to a management based on market mechanisms. The new money and credit management system rests on indirect mechanisms regulating liquidity and giving priority to market procedures and instruments. This system is based on three major principles, namely :

• a less important role of central bank money in order to favour the mobilisation of more important domestic savings;
• a harmonisation of monetary management rules with the internal organisation of economic activity and the developments in the world environment;
• the introduction of flexible monetary regulation mechanisms in the framework of a gradual liberalisation of the credit market combined with enhanced efficiency of banking supervision.

The final objective of monetary policy remains inflation control, in order to safeguard the internal and external value of the currency. The pursuance of this objective is in keeping with our desire to create the conditions conducive to durable economic growth.