Effectiveness of investments in WAEMU (West African Economic and Monetary Union)

22 mai 2017wathinote organisations régionales

Effectiveness of investments in WAEMU (West African Economic and Monetary Union)

A document or study and research by the BCEAO (Central Bank of States in West Africa)

Original document here

December 2014

Recently, there has been a noticeable increase in investment in WAEMU area. However, economic growth does not necessarily follow the observed increase in public investment. Even within WAEMU region, countries that have higher investment rate do not have the highest growth rate.

Moreover, a comparative analysis of the relationship between investment rate and economic growth rate show that WAEMU countries are lagging behind some Africans countries with similar economic structure (reference countries).

The following study aims to analyze, comparatively, the efficiency of investment in WAEMU area countries and in reference countries. To that aim, the incremental capital output ratio has been computed and used as a measure of efficiency of investment. The results show that reference countries outperformed WAEMU countries in term of investment efficiency.

Within WAEMU area, Côte d’Ivoire, Burkina, and Togo are the most efficient.

Further empirical analysis using Dynamic Ordinary Least Square (DOLS) estimation procedure has found GDP per capita, real interest rate, human capital, the ratio of export to GDP and corruption to be the most important determinant of investment effect. The overall results of this paper shed some light on how important public investment project management is to their efficiency. In addition, the right choice of public infrastructure project that generate economic growth is also as equally important.

The present study showed that the investments, in particular public, are in clear increase in the Zone UEMOA. However, this increase is not translated by a significant improvement of the economic growth. Indeed, by using the ICOR as measure of the productivity of the capital, the study showed that the investments are less successful in the Union, compared with reference countries.

Recommendations to improve investments in the Union:

The investments should be directed to the expanding sectors of economic growth or having fast effects of training on these sectors to improve significantly the global productivity of the economy. For that purpose, an analysis of the constraints in the economic growth at the level of every country should allow to identify these sectors;

As regards the human resources, the study showed that it affects positively the efficiency of the investments. In this respect, the countries of the UEMOA should stress their efforts to improve qualitatively and quantitatively the human resources in the Union. To reach this goal, it would be necessary that these countries increase their level of investment in the education and the vocational training;

The evaluation of the public investments is an element very important to consider by the countries of the Union. Indeed, as it showed, developing countries often neglect evaluation. This evaluation, in particular in public infrastructures, when it is realized limits itself to an analysis of conformity with regard to the deadline and in the granted budget while it should be connected to the objectives of the investment to appreciate its efficiency;

The improvement of the transparency in the allocation and the execution of the contracts of realization of the public infrastructures. Indeed, the elimination of the corruption is an imperative to reach more effective investments in the Union.

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