High Level Seminar : THE FUTURE OF MONETARY INTEGRATION IN AFRICA Jointly organised by the IMF Africa Training Center and Banque de France (IBFI), March 8–9 2016, MAURITIUS. Presentation by Jean Imbs, PSE: “Some recent developments of convergence criteria of monetary unions” The IBFI organized with the IMF’s Training Centre for Africa a high-level seminar on "the future of monetary integration in Africa" addressing forty Ministers and Governors, senior officials and executives of central banks from sub-Saharan Africa. Opened by Carla Grasso, Executive Vice President of the IMF, the seminar was structured with 4 round tables, one of which was chaired by Bruno Cabrillac (Banque de France -DERIE), and an address by Carlos Lopes, UN Under-Secretary-General , President of the United Nations economic Commission for Africa. It was introduced by the President of the Republic of Mauritius. The discussions were very lively between supporters of rapid regional monetary integration and advocates of a more cautious approach, considering trade integration as a prerequisite.

1. M t U iMonetary Unions:
Convergence Criteria
Some recent developments
Jean Imbs
Paris School of Economics
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs

2. 1 000
1.200
0.800
1.000
Exports / (GDP – Exports),
Nigeria 2000-2010
0.600
0.400
0.200
Exports / (GDP – Exports),
USA 1950 - 1960
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
0.000

3. Domestic Markets
• Population Nigeria 2000 around 160 millions
• Population USA 1950 around 160 millionsPopulation USA 1950 around 160 millions
• USA 1950 – Domestic Markets vast majority of value added.
• Nigeria 2000 Foreign Markets vast of majority of value added• Nigeria 2000 – Foreign Markets vast of majority of value added.
But…
• Oil in Nigeria
• USA is a continent-country
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
y

4. Exports / (GDP – Exports):
East African Community (in discussion)
0 500
0.300
0.400
0.500
Kenya 2000-2010
Tanzania 2000-2010
0.300
0.400
0.500
0.100
0.200
0.300
France 1950-1960 0.100
0.200
Italy 1950-1960
0.000
0.000
0.350
0.450
U d 2000 2010
0.200
0.250
Portugal 1975-1985
0.150
0.250
Uganda 2000-2010
0.100
0.150 Rwanda 2000-2010
Portugal 1975 1985
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
-0.050
0.050 Spain 1975-1985
0.000
0.050 Burundi 2000-2010

5. • Population Kenya 2000’s: 40M, Population France 1950’s: 40M.
France only reached current Kenya level in 2000.
• Population Tanzania 2000’s: 40M, Population Italy 1950’s: 45M.
Italy only reached current Tanzania level in 2010.
• Population Uganda 2000’s: 30M, Population Spain 1970’s: 35M
Spain only reached current Uganda level in 1996.
• Population Rwanda et Burundi 2000’s: 8-9M,
Population Portugal 1970’s: 9 5M Rwanda and Burundi are an exception:
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
Population Portugal 1970 s: 9.5M. Rwanda and Burundi are an exception:
domestic markets dominate. Perhaps for other reasons?

6. Exports / (GDP – Exports):
Central African Monetary and Economic Community
1.4 Guinee Eq. 2005-2010
1
1.2
Chad 2000-2010
14
16
18
20
Guinee Eq. 2005 2010
0.4
0.6
0.8
Cameroun 2000-2010
6
8
10
12
Rep. Congo 2000-2010
0
0.2
CAF 2000-2010
Cameroun 2000 2010
0
2
4
Gabon 2000-2010
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs

7. Exports / (GDP – Exports), 2000-2010
West African Economic and Monetary Union
1
1.2
Cote d’Ivoire
0.8
Togo
0 4
0.6
S l
Mali
Niger
0.2
0.4
Senegal
Guinee Bissau
Benin
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
0
Burkina Faso

8. Exports / (GDP – Exports), 2000-2010
Economic Community of West African States (discussed)
1
1.2
Ghana
Nigeria
0.8
Liberia Guinee
0.4
0.6
Guinee
0.2
Gambia
Sierra Leone
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
0
1 2 3 4 5 6 7 8 9 10 11 12
relativeGMB relativeGHA relativeGIN relativeLBR relativeNGA relativeSLE

9. Domestic Markets and Diversification
• Holding population constant, the majority of African countries are
more open to foreign markets.more open to foreign markets.
• Reflects limited integration of domestic markets.
• Very relevant for economic and monetary integration because it• Very relevant for economic and monetary integration, because it
affects directly the diversification of the economy.
• Local specialisation occurs in integrated markets: whether it happens
via international trade or local trade.
• The lack of domestic integration creates high levels of specialisation.
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
g g p

10. Domestic Markets and Diversification
Gini Index for Sectoral SpecializationGini Index for Sectoral Specialization
(Census Data, all sectors, 1-digit)
Mali South Africa Spain France Austria USA
0.861
(1987)
0.233
(2001)
0.350
(1981)
0.369
(1962)
0.403
(1971)
0.375
(1960)
0.904
(1998)
0.266
(2007)
0.295
(2001)
0.318
(1999)
0.385
(1991)
0.332
(2000)
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs

11. Domestic Markets and Diversification
Gini Index for Sectoral SpecialisationGini Index for Sectoral Specialisation
(Manufacturing, 2-digit, UNIDO)
> 0.70
Benin, Burkina Faso, Burundi, CAF, Gambia, Ghana, Kenya,
Malawi, Niger, Nigeria, Tanzania, Uganda0.70 Malawi, Niger, Nigeria, Tanzania, Uganda
> 0.4
Botswana, Cameroon, Congo RP, Cote d’Ivoire, Gabon,
Mauritius, Senegal, south Africa, Sudan.
= 0.25 Developed Economies
Le futur de l’integration monetaire, Ile Maurice, 8-9 Mars 2016Jean Imbs

12. Domestic Markets and Diversification
• Sub-Saharan Africa trending towards more specialisation.
• International integration dominates domestic integration.International integration dominates domestic integration.
• No apparent trend in Europe / Advanced Economies.
• EU had only limited impact on the specialisation of member countries• EU had only limited impact on the specialisation of member countries.
• These are economies with already integrated domestic markets when
they entered union.
• And thus that were highly diversified already.
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
• Why is that relevant?

13. Diversification and Monetary Union
• Extreme Specialisation has important macroeconomic consequences:
• Cycles are not synchronized
1. First because of extreme specialisation in different activities
(typically commodities)(typically commodities)
2. Second because of the lack of any local integration (e.g. intra-
African trade)
3. Global integration is not helpful, as it favors synchronization
with the North (e.g. global value chain, MNC).
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs

14. Integration and Diversification
Diversification
Synchronisation
Domestic Integration
Diversification
International Integration
Specialisation
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
De-Synchronisation

15. Diversification and Monetary Union
• Extreme Specialisation has important macroeconomic consequences:
• Little structural convergence:
1. Labor market integration: How to serve border areas without
domestic mobility?domestic mobility?
2. Financial markets integration: Risk sharing gains are limited to
local consumption
3. Productivity convergence: Productivity gains are limited
without local specialisation of labor.
4. GDP is volatile, no convergence in GDP per capita.
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
, g p p

16. Diversification and Monetary Union
• Peter Kenen: Product diversification is a fundamental element in the
list of Optimal Currency Area criteria.list of Optimal Currency Area criteria.
• Linked directly with domestic market integration: it is first and
foremost through local markets that diversification takes offforemost through local markets that diversification takes off..
• A high level of diversification is a pre-requisite of monetary union.
1. First because it makes it easier to satisfy OCA criteria.
2. Second because it creates a diversified base from which the re-
specialisation triggered by MU has fewer macroeconomic
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
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consequences.

17. Recommendations
• Compute directly a measure of diversification if sector-level data are
available (unusual at 1-digit for the region as of now)available (unusual at 1 digit for the region as of now)
• Alternative: Exports / ( GDP – Exports)
• Facilitate local trade through a border or not• Facilitate local trade – through a border or not.
• Accompany (at least) economic and monetary union with domestic
infrastructure projects.
• Roads, bridges, harbors. Phone networks. Wifi networks.
• Monetary union is more viable if built on diversified nations whose
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
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domestic markets are integrated.

18. Recommendations
• Especially relevant when the “synchronizing” effects of monetary
i b ll h i l h hunions may be smaller than previously thought.
(“Currency and Trade: A Post EMU Mea Culpa”, Glick et Rose 2015)
• Synchronizing effects of diversification constitute an attractive
alternative for Sub-Saharan Africa.
• Especially relevant for Sub-Saharan Africa, where ethnic fragmentation
within borders is rampant because of colonial borders. This fragments
l l k d f i li i
The Future of Monetary Integration, Mauritius, 8-9 March 2016Jean Imbs
local markets, and fosters specialisation.