Introduction

Prime Minister Duncan, Finance Minister Niamien, Governor Banny, distinguished guests, it is an honor to represent the US Treasury on this important occasion. I am especially pleased to be addressing a group of financial sector representatives and potential investors who are interested in new opportunities in West Africa.

My dissertation at Yale was on the creation of the European Common market and the question of whether it generated new trade increasing welfare and living standards or simply diverted existing trade distorting economic incentives and reducing welfare. Recent economic trends in the West African Franc Zone, therefore, relate directly to a long-standing personal interest of mine.

For nearly fifty years, the European Community worked on creating a customs union and what I understand was once called the four "Fs": freedom of movement of capital, goods, services, and labor. It wasn't until last year that the European Union established a common central bank, followed this past January by the partial introduction of the euro.

The monetary unions of Europe and West Africa are essentially mirror images of one another. In fact, the "fathers" of the European Monetary Union looked at the experience of the WAEMU countries when preparing to launch the euro. Similarly, the EU is providing essential technical and financial support to various regional initiatives of WAEMU.

• Macroeconomic performance has been strong since the 1994 devaluation of the currency.
• Real GDP growth has remained at 6 to 7 percent each year since 1995, and is projected at 5.5 percent in 1999.
• Following an initial surge to 32 percent after the devaluation, inflation declined rapidly and is projected at less than 3 percent for 1999.
• If the Ivorian government gets its IMF reform program back on track, it could obtain further debt reduction in 2001 under the enhanced initiative for Heavily Indebted Poor Countries that was endorsed at the G-7 meeting this past summer in Cologne.
• The Ivorian government has shown a commendable commitment to reducing its role in the economy. Since 1990, 54 entities have been privatized of the 60 scheduled for privatization, including in particular some major ones in the agribusiness sector.
• The country has liberalized its cocoa and coffee sectors and dissolved the marketing board CAISSTAB, eliminating an opaque mechanism for controlling trade in key commodities. Liberalization of cocoa and coffee has contributed to new investment opportunities for US agribusiness firms: I understand that Cargill recently took advantage of this new opening and invested $68 million in a cocoa processing plant in Abidjan.
• In 1998, Cote d'Ivoire signed a new 3-year IMF program that allowed the country to receive debt reduction from the Paris and London Clubs. The Ivorian government lowered its external debt from $16 billion in 1996 to around $11 billion at end-1998.

Cote d'Ivoire's leadership in economic reforms has been the major engine of growth in WAEMU. The creation of a single market should greatly assist the eight WAEMU countries in overcoming the disadvantages of their small size, and help them prepare to compete internationally and to better integrate their economies into the global markets.

The population of WAEMU, totaling about 66 million people, is equivalent to two-thirds that of Nigeria or 11 percent of the population of Sub-Saharan Africa. The combined GDP of about $25 billion is approximately 90 percent of Nigeria's, or 10 percent of the real GDP for all of sub-Saharan Africa. The integrated region has grown about 5.5 percent each year since 1995 and is projected to grow about 6 percent in 1999.

The Central Bank, or BCEAO, has made an important contribution to macroeconomic stability in WAEMU. Since 1994, it has helped to bring down inflation and raise foreign exchange reserves to a more comfortable level (about 7 months of regional imports). Inflation has fallen in that time from 29 percent to less than 4 percent in 1998. The build-up of reserves also reflects recent economic stability and improving investor confidence.

The governments participating in WAEMU have also begun to integrate their financial markets, creating a regional stock exchange in September 1998. This step was shortly followed by the establishment of the Regional Council for Public Savings and Financial Markets, which has authority to allow the sale or placement of foreign securities in the WAEMU region.

WAEMU also recently adopted a regulation that permits residents to purchase foreign securities listed in the regional stock market and liberalized the forward foreign exchange market to allow importers and exporters to hedge their currency exposure.

Finally, in January 2000 the maximum external tariff rate for WAEMU will fall to 20 percent, from a trade-weighted average of more than 30 percent just a few years ago.

While the regional equity and foreign exchange markets seem to be maturing, the regional debt market needs to be further developed. The recent issuance by the Ivorian government of CFA-denominated treasury bills through the BCEAO reflected the government's interest in developing a domestic debt market, but simultaneously highlighted a need to deepen the domestic bond market to facilitate long-term domestic currency debt financing.

This issue is understood clearly by the government, which was one of 33 countries that contributed to international discussions in Washington earlier this year on reforming the international financial architecture and promoting best practices in debt management. Guidelines for debt management policies - internal and external - are an item of urgent unfinished business on the international financial agenda.

I am also pleased to say that the Treasury Department and BCEAO are moving to establish a technical assistance relationship in public debt management. A Treasury technical assistance team will depart for Senegal early next month to finalize the Terms of Reference for a resident advisor. Our goal is to support the BCEAO and WAEMU member governments in their joint effort to develop the government securities markets.

Cote d'Ivoire, as the largest player, is likely to be a primary beneficiary of our assistance, but the resident advisor will be available for consultation with the other seven member governments as well.

The reforms I have outlined are important steps that should encourage investment and boost the development of capital markets in Cote d Ivoire and its WAEMU partners. But growth in investment, particularly in foreign direct investment, will depend importantly on the credibility of WAEMU government investment policies. The fundamentals are fundamental.

Since 1994, investment-to-GDP ratios have been on an upward trend, but remain relatively low in WAEMU. Investment as a share of GDP is around 17 percent, compared with over 21 percent for other African countries.

A major challenge in attracting more domestic and foreign direct investment will be to eliminate discriminatory practices and distortions associated with customs and tax exemptions. In this respect, the recent harmonization of business laws represents a major step forward, but it will need to be complemented with an overhaul of the judicial system - which I understand is an objective of the Ivorian government.

We hope as well that the BCEAO under Governor Banny will persevere with its plans to create a regional banking system that will encourage cross-border banking and great competition for deposits and loans - competition that is not always welcome by the bankers, but competition that is welcome to their customers. Increased competition improves financial sector efficiency and helps increase saving and investment levels. While cross- border banking laws are in place, progress on the ground to date has been slow.

During his visit to Abidjan last year, former Treasury Secretary Rubin identified a series of elements that he considered crucial in the effort to attract private capital to Africa. On two of these elements - political and economic stability - Cote d Ivoire has compiled an excellent record. Substantial efforts are under way to put others in place, not just on a national level, but on a regional level in WAEMU. These include openness to trade and investment, a well-supervised and competitive financial system, a stronger administrative apparatus, and investment in people. We encourage President Bedies government and its neighbors to persevere in these very important efforts.

Creation of a functioning regional market is not something that can be accomplished overnight. As the experiences of both WAEMU and the EU demonstrate, this is a long-term project. What is needed is a continuing process of self-reinforcing reforms that create a virtuous circle of growth, market deepening, and additional reform.

While pauses are to be expected, they must be temporary if the reforms are to sustain internal political and external financial support. The process of market creation has been well begun by Cote d Ivoire and the other WAEMU countries. We look forward before too long to the appearance of a true Emerging Market on a regional scale in West Africa, with Cote d Ivoire at its center.