DAKAR (Reuters) - Economic growth in the eight-nation West African currency union is on track to reach 7 percent this year, lifted by a resurgent Ivory Coast as the region shrugs off turbulence in emerging markets, the central bank governor said.
Tiemoko Meyliet Kone said the bloc’s economy was reaping the rewards for years of economic reforms by its members and now also stood to benefit from a gradual recovery of growth in the European Union, its main trading partner.
The region’s robust performance would be largely driven by the economy of Ivory Coast - the world’s largest cocoa producer - which is forecast to expand by 9.1 percent this year, he said. Ivory Coast makes up over a third of the bloc’s $80 billion economy.
“The real growth rate of the Union, which stood at 6.5 percent in 2012 and 6.3 percent in 2013, is expected to reach around 7 percent in 2014,” Kone told a Reuters Africa summit.
The gradual upturn under way in Europe would help to support the price of West African commodities and raw-materials exports.
“In time, economic recovery in Europe should translate into an increase in exports from the bloc towards this region, in particular to the euro zone,” Kone said.
Kone said the bloc would feel no direct affect from the U.S. Federal Reserve’s tapering of its bond-buying program, which has sent shockwaves through some emerging markets.
“In our zone, there is not a significant volume of speculative capital flows which would lead to fears of important capital flight,” he said. “We have foreign direct investment, which is a lot more stable and contributes to economic growth.”
The union’s central bank, headquartered in Dakar, serves Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal, Togo and Guinea-Bissau. Its CFA franc is fixed at 655.957 to the euro.
Foreign direct investment (FDI) in the zone grew at 16.5 percent a year between 2005 and 2013, to reach the equivalent of roughly 2.7 percent of its gross domestic product, Kone said.
“The main beneficiaries of this have been the mining sector - particularly gold - oil, uranium and manganese, telecoms and the banking sector,” he said. “Taking into account the strong growth outlook, FDI is going to grow more in the zone.”
In Ivory Coast, FDI boomed by 12 percent in 2012-2013, encouraged by President Alassane Ouattara’s business-friendly reforms. New projects in agribusiness, transport and hotels suggest FDI levels there are set to climb further, Kone said.
Kone urged governments to press ahead with reforms to diversify economies away from commodities such as cocoa, gold and iron, which made the region vulnerable to price shocks.
“Efforts are being made in all the countries in the region to transform their economies and reinforce the contribution of manufacturing and new technology to growth,” he said.
He noted that increased investment by the bloc’s governments - in an effort to lay the foundations of growth - had pushed up fiscal deficits despite efforts to trim current expenditure.
The central bank, which cut its base rate to 2.50 percent in September, was encouraging lenders to lower interest rates and increase credit supply, which the International Monetary Fund has cited as a drag on West Africa’s economy. The central bank lowered the legal rate of usury for banks to 15 percent from 18 percent from January 1 and is promoting Islamic finance and lease financing.
After negotiations with banks, a deal was also struck for commercial lenders to offer a certain number of core services free of charge from July 1 this year, in an effort to stimulate the use of bank accounts in one of the world’s poorest regions.
Only 5 percent of the bloc’s population have bank accounts and lending to the private sector was less than 18 percent of GDP, amongst the lowest in Africa, the IMF said in a 2012 paper.
Kone said plans were progressing to establish credit bureaux that would amass information on borrowers’ creditworthiness, allowing banks to lower interest rates. A tender has been opened for a company to operate the bureaux, which should start operations next year, he said.
(This story has been refiled to restore words dropped from first paragraph.)
Editing by Larry King