The economic activity represents the whole of the actions that must be carried out by physical or moral persons (called economic agents) in order to satisfy their needs thanks to the production of goods and services.
Economic agents are all in relation with each other. For example, households have relationships with other economic agents such as companies, banks and government agencies, which are themselves in reciprocal relationships. These exchanges are materialized by flows that represent the movement of goods and services (real flows) and the movement of money (monetary flows) between the different economic agents.
The economic circuit is a pictorial and simplified representation of economic activity that allows the essential relationships between the different agents to be described by means of flows. Each flow is characterized by its nature and the direction of movement, represented, by convention, by means of a directed arrow.
The flows are, in general, reciprocal and a real flow, work for example, corresponds, in return, to a monetary flow, the wage.
However, some flows are unilateral and therefore have no counterpart. For example, it may be a real flow that has no monetary counterpart, such as the free service of a public administration or the work of a volunteer for an association. Conversely, a monetary flow may not give rise, in return, to a real flow or a monetary flow: this would be the case, for example, for a donation made by a household to the Red Cross, which is a private administration.
An example of an economic circuit
Source : www.maxicours.com
This scheme includes financial companies, which are essentially banks or credit institutions. They finance economic agents by granting them loans (which will give rise to repayments including interest) and also manage the savings of these economic agents (deposit accounts, purchase of securities, etc.). The rest of the world includes all the economic agents (households, companies or administrations) abroad who have relations with the country.
Administrations are financed by compulsory levies (taxes, duties and social contributions), in return for which they provide free or quasi-free (non-market) services and pay social benefits (redistributed income such as unemployment benefits, scholarships...) and subsidies to companies (financial aid to develop innovation for example).
This representation of economic activity therefore reflects a global vision of economic mechanisms that allows us to understand the interdependencies between economic agents. It is an essential tool for forecasting and economic analysis.
Illustrative example
Let us imagine in this example that the State decides to increase the level of the minimum wage in Benin (SMIG), what will happen?
Thanks to this increase in the minimum wage, households will increase their consumption, which will improve the profits of companies. They will be able to expand, produce more and hire new employees. Households will also save a little more, which will increase the reserves of financial companies, which will then be able to lend more money (to companies that invest, for example).
The government's revenues will increase, and compulsory deductions will be higher because of the increase in income and consumption. The State will therefore be able to devote these new resources to health and education spending or redistribute more income to the poorest.
Finally, some of this additional income will be consumed in foreign products, which will increase imports.
The increase in the minimum wage will therefore have led to an increase in production, consumption and the income of economic agents. There will therefore be economic growth. However, this could lead to a deterioration in Benin's trade balance due to the increase in imports.
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The simple play of the market is no longer sufficient to ensure the equilibrium of economies. For this reason, the public authorities (States, institutions, etc.) intervene through economic policy to regulate macroeconomic imbalances. Depending on the objective sought (price stability, external balance, growth, employment), it uses different instruments (monetary policy, fiscal policy, income policy, etc.).
Monetary policy is the instrument used by the public authorities to ensure price stability. More generally, monetary policy is <<the set of means implemented by a state or a monetary authority to act on economic activity through the regulation of its currency>>
To achieve this mission, the monetary authorities traditionally use the interest rate, which is nothing more than the price over time. Through interest rate movements, the monetary authorities can accelerate or slow down the pace of economic activity.
Since the financial crisis of 2008 and faced with the new challenges of the last decade, monetary authorities (mostly Central Banks) have resorted to a new tool called non-conventional. This is quantitative easing, better known under the anglicism "Quantitative Easing (QE)". The monetary authorities massively buy financial assets (government bonds, corporate bonds, etc.) from commercial banks and provide them with liquidity in return. The commercial banks, having thus important financial resources and in search of profitability, finance the economic activity (public and private investment projects, etc.). It is said that Central Banks inject liquidity into the economy.
In the WAMU zone, the money market is the place where authorized financial institutions exchange liquidity with the Central Bank or among themselves. It is composed of the intervention windows of the BCEAO and the interbank market. The BCEAO intervenes on this market to provide or take over liquidity in order to control the interest rates charged on the interbank market. The Central Bank intervenes in open market operations, refinancing on the permanent windows and the intraday advance window.
Tenders or open market operations are the main means of intervention by the Central Bank and are conducted through the sale, purchase or repurchase of securities or bills. They include the main liquidity injection operations with a maturity of one week, long maturities of between one (1) and twelve (12) months, liquidity withdrawal operations, one-off adjustment operations and temporary or final sales of securities on the interbank market.
In addition to the tender window, the Central Bank has set up permanent windows (marginal lending window, special refinancing window and intraday advance window) to provide back-up liquidity to eligible credit institutions on demand.
On the marginal lending window, BCEAO offers refinancing opportunities with maturities ranging from one (1) to seven (7) days, while on the special refinancing window, eligible counterparties can benefit from advances with maturities ranging from three (3) to twelve (12) months. The intraday advance window is available to participants to meet cash flow needs during a trading day. Advances from this window are repayable on the same day and are interest-free.
Access to BCEAO's refinancing windows is reserved for credit institutions and community institutions as provided for in Article 22 of the WAMU Treaty, subject to compliance with the prudential provisions applicable to banks and financial institutions as well as those governing the minimum reserve system. BCEAO's refinancing is backed by public or private bills and securities taken as collateral.
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Economic crises such as the one the world has been experiencing for the past year, due to Covid-19, are all the more formidable as they threaten the survival of a certain number of companies and can lead to their bankruptcy.
Generally speaking, the economic bankruptcy of a company is declared when the latter is unable to settle its financial obligations as they fall due, in other words it can no longer cover its short-term debts (suppliers, lenders, shareholders, employees, etc.) thanks to its cash flow. In legal terms, we speak of "bankruptcy filing" or "cessation of payments".
The factors that lead to the failure of a company can be endogenous, i.e. bad management (planning, financial management, marketing...), fraud; but it can also result from exogenous factors such as lack of support from banks and financial institutions (high interest rates), competitive actions of other companies, insufficient government policies, inadequate economic sphere (slowdown of economic activity due to socio-political crisis or shocks: health crisis, natural disasters..). Whatever the causes, the bankruptcy of a company is generally not a sudden event. It is the result of a succession of organizational and financial events that have occurred in the company's environment, as well as the strategies that it will implement to face these events.
When a company is confronted with management difficulties or external shocks, and its resources are not deployed in an appropriate manner to cope with the pressures, it can enter a process of failure that is reflected in the increasing deterioration of financial indicators.
The observation of the symptoms of failure can appear gradually, we speak of a spiral of failure which is manifested by: the decrease in turnover, the decline in profitability of activities as well as the loss of market share, distrust and pressure from external partners (banks, suppliers,..). The decrease in profitability leads to a lack of liquidity which can be a factor of discouragement for the staff. Corrective actions can be implemented to rectify the situation, in particular the search for external capital through new investors or shareholders or the acquisition of new loans which increase the debt. As debt increases, expenses also increase, and profitability continues to decline. This spiral process leads to a complete deterioration of the company's financial situation and, after some time, to the company's bankruptcy, which is accompanied by legal proceedings.
Examples:
- In Benin, the company GLO MOBILE BENIN S.A. filed a declaration of cessation of payments with the Commercial Court of Cotonou in 2018 and requested the opening of a liquidation procedure.
- The former coffee and cocoa trading giant, Saf Cacao, was put into liquidation in July 2018, for cessation of payments.
- The French e-commerce platform, Afrimarket, which operated in West Africa, has filed for bankruptcy in 2019. The cause of the fall of this start-up would be the lack of maturity of the e-commerce market in Africa, as well as the fear of potential investors in the face of competition from the giant player Jumia
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The State, individuals and companies have objectives that economics calls "needs", but they have limited means to satisfy them. Indeed, a large part of the resources of the human ecosystem (the planet) are by nature limited and therefore cannot satisfy all needs. As a result, infinite growth in a finite world is impossible. Thus, a frantic quest for growth would be hardly sustainable and in the long term harmful. Thus, each withdrawal of non-renewable resources mortgages the future as to the chances of long-term survival of humanity. In their growth models, economists have forgotten to take into account the limits of the biosphere. These different observations have given rise to the theory of economic degrowth, mainly promoted by Nicholas Gorgescu-Roegen.
It is an economic as well as a social and political concept that challenges the idea that increasing wealth leads to the well-being of society. The term "degrowth" refers to an economic situation during which the economic wealth produced does not increase or even decreases. This concept is to be distinguished from recession, which is simply the observation of a negative growth rate in a productivist economy. The concept of degrowth is a voluntary approach and not an imposed reality. It is based on the principle of awareness of a finite world, with limited resources, and on the idea that only a reduction in global production and consumption can ensure the future of humanity and the preservation of the planet. Growth cannot be infinite in a finite world.
If the positions of degrowth ideology remain a minority in the global economic concert, its themes nevertheless impact many discourses, particularly those related to sustainable development. Indeed, in the field of ecology and sustainable development, the idea that our economic model based on growth is the root of environmental problems is increasingly widespread. It is to support economic growth and the increase of GDP that the global economic system is constantly pushed towards the consumption of natural resources, the increasingly systematic conquest of ecosystems, the use of fossil fuels and chemicals... It is because of the preponderance of these economic activities and their externalities on the environment that we observe today global warming, the degradation of biodiversity or air pollution.
In degrowth thinking, there is therefore the idea that we must stop trying to produce more at the expense of nature, and that we must instead try to produce less, but better and with fewer resources.
In the end, degrowth seeks to redefine our economic model by taking resilience as its basic concept.
Few economists advocate economic degrowth, and until now they have been considered marginal. In the eyes of politicians, they were at best idealists with utopian ideas, at worst illuminated and ignorant of how the economy works. But in the light of the consequences of the containment to fight against the Covid-19 pandemic, degrowth theorists are becoming audible and their ideas are gradually entering the debate. Less production, less consumption, and consequently less extraction, less waste, less pollution, less travel, less noise..., such are the consequences of containment on the world economy. Although it is not wanted, we are currently experiencing a glimpse of what awaits us in the worst if we do not abandon the religion of infinite growth. But is degrowth feasible? It is based on the concept of decoupling, which implies a continuous growth of the GDP while reducing in a generalized way the ecological footprint linked to economic activities. But all the studies show us that this is impossible. The only time we have progress for the environment is when the economy slows down. GDP growth is based on energy consumption and material consumption.
So degrowth : utopia or reality ?
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For a long time, agriculture was the primary source of wealth in Benin, ahead of services and industry. Over the past two decades, however, there has been a major change: the rapid growth of the services sector fueled in particular by the rise of entrepreneurship, supported by digitalization (WhatsApp, Facebook, Instagram) and the soaring use of mobile money. In 2019, services accounted for 48.8% of GDP, compared with 28.1% for agriculture and 14.8% for industry.
Graph: Employment and value added by sector in Benin
Source: AJEB based on WB World Development Indicators data
It can be seen that the increase in the value added (as a percentage of GDP) of the services sector is accompanied by an increase in the share of employment covered by the sector. These employment figures are estimates by the International Labour Organization and may therefore underestimate the current situation.
The digital revolution and the acceleration of digitalization by the covid-19 pandemic strongly affect all sectors but especially services. Everywhere in the world, young people are reinventing themselves, entrepreneurship in the digital age, goes through digital marketing, e-commerce. Social networks (groups, WhatsApp statuses, Facebook, Instagram, Twitter) are used beyond distraction to approach and maintain its customers. The internet is now an important input of production factors. Students have at their disposal on the Internet MOOCS, online training ...
The sustainable development of the economy requires the development of the private sector, the creation not only of a favorable administrative framework but also of an appropriate environment. With digitalization, the development of the private sector and therefore of the economy requires access to digital for all.
In Benin, we are witnessing an almost duopoly held by MTN and MOOV. Today, the cost of internet connection in Benin is still quite expensive. Too expensive and its costs suffocating for the young population, entrepreneurs, and students.
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The minimum monthly salary in Benin is 40,000FCFA. A monthly 3GB package costs 4000FCFA or 10% of the minimum wage. The average student from a low-income family does not have the necessary means to have access to online training, MOOCs. The covid-19 pandemic has notably revealed the importance of access to the internet. Many students in the various faculties and schools in the country, found themselves unable to take courses through TEAMS, ZOOM .
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Creditworthiness is a rating agency's assessment of the risk that an issuer's debt will not be repaid. The latter may be a country, a public entity, a commercial or industrial company or a financial institution. This credit quality is established after rigorous analyses of qualitative and quantitative parameters.
Already in June 2019, without having been solicited by the State, Moody's Investors Service (known more simply as "Moody's") awarded the Government of Benin a first rating (B2) of issuer in local and foreign currency, with a positive outlook.
This Moody's "highly speculative" rating was based on the following factors:
a "Low" level of economic strength;
institutional strength "Weak";
A "very low" level of public financial strength with a relatively high public debt;
a "Moderate (-)" exposure to event risk.
The "positive outlook" was based on the anticipated continuation of fiscal consolidation and stronger GDP growth thanks to the successful implementation of the "Government Action Program" (PAG), which is likely to lead to a faster decline in public debt, financing needs and liquidity risks than in the scenario currently retained by Moody's.
On March 9, 2021, Moody's raised the long-term issuer and senior unsecured debt ratings of the Government of Benin by one notch, from B2 to B1 with a stable outlook, and still in the "highly speculative" category.
According to Moody's, this upgrade of Benin's rating is due to :
solid results in fiscal consolidation and improvement of the debt structure, supported by good public financial management;
increasing economic resilience, with robust growth prospects supported by ongoing structural reforms.
The stable outlook reflects Moody's mixed expectations that the economy will return to robust growth; and that Benin's fiscal and debt parameters will stabilize and improve comparatively over the medium term.
Finally, it should be noted that this latest Moody's rating is at the same level of appreciation of Benin's creditworthiness as the B+ rating with stable outlook assigned by Standard & Poor's in June 2020.
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Insurance is a service of the tertiary sector of the economy that provides a service upon the occurrence of an uncertain and random event called risk.
The different insurance schemes allow to cover most of the risks of life, whether they are attributed to natural or legal persons.
Through its essential functions of risk coverage and recycling of savings, insurance plays a vital role in the economic activity of a country.
Since 1964, UNCTAD (United Nations Conference on Trade and Development) has recognized that "a soundly based domestic insurance and reinsurance market is an essential element of economic growth.
The development of the insurance sector will thus improve its contribution to economic growth.
The most commonly used indicators to judge the development of the insurance market in a given country are: the penetration rate and the insurance density.
The insurance penetration rate for a given country is calculated by expressing total insurance premiums as a percentage of the country's gross domestic product (GDP) and indicates the extent to which the insurance sector contributes to the national economy.
Insurance density in a given country is the calculation of the volume of premiums per capita. Expressed in monetary units (FCFA for West African countries), it indicates the average amount spent by each inhabitant to cover risks.
In Benin, as of December 31, 2019, the insurance sector includes fifteen (15) insurance companies, of which six (06) are in life insurance and the rest are property and casualty companies (Fire, Accident and Miscellaneous Risks).
The insurance penetration rate, which has stagnated at 0.70% since 2017, rose to 0.72% in 2019. Nearly 60% of this rate is achieved by property and casualty companies.
As for the density of insurance, it has been increasing since 2018 and stands at 4,984 FCFA in 2019. Beninese therefore spent, on average, about FCFA 5,000 on insurance coverage. The density of the life insurance branch was 2,020 FCFA.
The very slow progress of the penetration rate (quite low) demonstrates the poor development of the insurance market in Benin. The insurance culture is not well developed in Benin and the insurance sector actors at various levels must work to popularize this culture.
Source: Realization AJEB from the data of the Direction des Assurances
Source: Realization AJEB from the data of the Direction des Assurances
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Potential GDP is the highest level of gross domestic product that the economy can sustain over the long term. Introduced by Okun (1962), potential GDP refers to an unobservable and abstract concept. The economy is at its potential level when all factors of production are at full employment. In absolute terms, full employment corresponds to a situation where all job providers are working. Theoretically, at the potential level of economic activity, there is a very low level of unemployment qualified as natural unemployment, without inflationary pressure (generalized price increases).
There are two opposing currents of thought on the notion. According to the Keynesian vision, the potential level of GDP is that compatible with an unemployment rate that does not accelerate inflation. But according to the neoclassical view, potential output is a trend concept and is driven by exogenous shocks affecting productivity and, by ricochet, aggregate supply, and "determines the long-term growth path and short-term fluctuations in output" (Abou and Melesse, 2012).
The notion of potential GDP is abstract but very important for economists and policy makers, because all economies aspire to full employment. Knowing therefore the relative position of the economy in relation to the potential level (below or above) is a decision support tool. The difference between potential GDP and realized GDP is called the "output gap".
Different measures are used to capture potential GDP that can be grouped into two categories depending on whether they are based on economic theory: non-structural methods and structural methods. While non-structural methods (e.g. Hodrick-Prescott filter and deterministic trend method) do not borrow anything from economic theory, structural methods for estimating potential output (e.g. structural VAR, DSGE, production function models) use economic theory.
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Public spending and inflation theoretically have a strong link. Given the level of taxes, an expansionary fiscal policy (increasing public spending in order to stimulate demand and de facto growth) can have perverse effects on the economy. The economy will end up well above its potential level (full employment), generating inflationary pressures.
The U.S. economic stimulus package estimated at US$1.9 trillion is raising concerns about a return of inflation. Economists Larry Summers and Olivier Blanchard consider this stimulus policy too ambitious and warn of a possible overheating of the economy.
From the first quarter of 2018 to the fourth quarter of 2019, economic activity in the United States was slightly above potential (observed GDP above potential) before experiencing a drastic and deep fall in the second quarter of 2020 (covid-19 effect). The Congressional Budget Office (CBO) projections anticipate a gradual return of economic activity to its potential level until the fourth quarter of 2023. But the economy will remain below potential in the absence of a new shock.
President Joe Biden's stimulus package would obstruct the CBO's projections and quickly push economic activity above potential. This positive shock could be accompanied by the return of high inflation. The U.S. Federal Reserve, in response to this situation, could then adopt a restrictive monetary policy by raising interest rates to slow the pace of economic activity.
What about the implications of an overheated U.S. economy on African economies?
The overheating of the U.S. economy could lead to imported inflation in several countries, including those in Africa. The high content of international trade in U.S. dollars makes it possible to understand the transmission mechanisms. American inflation will lead to an increase in the prices of goods imported (from) the United States. If, for a country, the consumption basket of the population is strongly dominated by goods imported from the United States, then there would be an increase in the general price level in that country. For countries with a fixed exchange rate regime, the inflation mechanism imported from the United States may result from the constraint on the central bank to maintain the fixed exchange rate. Indeed, U.S. inflation will be accompanied by a large amount of dollars in circulation (due to the vast stimulus package). Local central banks, in order to maintain the fixed parity, will buy back U.S. dollars, which will increase the supply of local currency. If economic activity does not follow this increase in the money supply, inflation will result.
Furthermore, if the U.S. Federal Reserve decides to pursue a restrictive monetary policy by raising interest rates (in order to control inflation in the United States), this will hamper the latitude of African countries in the international capital (debt) market to finance their economies.
In the short term, however, the overheating of the U.S. economy could benefit African economies by improving the competitiveness of goods produced in Africa relative to goods from the United States that will be more expensive. But the heavy dependence of African countries on imported goods, coupled with the predominantly raw material content of African exports, could quickly obstruct this positive effect.
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A share is a title deed issued by a corporation (e.g., a public limited company or a partnership limited by shares). It confers to its holder the ownership of a part of the capital, with the associated rights: to intervene in the management of the company, i.e. to vote at general meetings of shareholders and to receive an income called a dividend, which represents a share of the annual profits distributed by the company.
The holder of shares qualifies as a shareholder and all shareholders constitute the shareholding.
The shares are issued as consideration for the contributions made when the company is created, thereby constituting its share capital.
During its existence, the company may issue new shares during a capital increase that will be subscribed either by existing shareholders or by third party shareholders.
The decision to issue new shares, to whom they are offered for subscription and at what price are sensitive elements in the life of a company.
Conversely, but more rarely, a company may buy back its shares to support the share price by way of a normal course issuer bid. This repurchase is different from the repurchase carried out to support the share price via a liquidity contract, since in the latter case the shares will be resold as quickly as possible.
The issue of shares is therefore often synonymous with a capital increase, while the repurchase followed by cancellation generally corresponds to a capital reduction. The company carrying out these operations therefore sends a message of either growth or decline.
A share buyback program is announced in Nigeria by the billionaire ALIKO Dangote up to 10% of its capital for a value of approximately 6 billion dollars to support the stock market price (see AFRIMAG News of December 22, 2020).
According to the ECOFIN Agency dated August 24, 2020, Heineken is accelerating the purchase of more than 6 million shares of Nigeria Breweries, its subsidiary in Nigeria.
In order to ensure the liquidity of the shares and their constant valuation, the company may decide to list its shares on the financial market.
A share is listed from the moment it can be bought or sold on the stock market, commonly known as the stock exchange. The table below presents, by sector, the shares listed on the Regional Stock Exchange (BRVM).
SYMBOL |
TITLE |
SECTOR - INDUSTRY
OACC |
SICABLE CI |
FTSC |
FILTISAC CI |
NEIC |
NEI-CEDA CI |
NTLC |
NESTLE CI |
SEMC |
CROWN SIEM CI |
SIVC |
AIR LIQUID CI |
SLBC |
SOLIBRA CI |
SMBC |
SMB CI |
STBC |
SITAB CI |
TTRC |
TRITURAF CI-Ste enLiquidation |
UNLC |
UNILEVER CI |
UNXC |
UNIWAX CI |
UTILITY SECTOR |
|
ICCS |
CIE CI |
ONTBF |
ONATEL BF |
SDCC |
CI SODE |
NSTW |
SONATEL SN |
FINANCIAL SECTOR
BICC |
BICI CI |
BOAB |
BANK OF AFRICA BN |
BOABF |
BANK OF AFRICA BF |
BOAC |
BANK OF AFRICA CI |
BOAM |
BANK OF AFRICA ML |
BOAN |
BANK OF AFRICA NG |
BOAS |
BANK OF AFRICA SENEGAL |
LWIBC |
CORIS BANK INTERNATIONAL |
ECOC |
ECOBANK IVORY COAST |
TIT |
ECOBANK TRANS. INCORP. TG |
NSBC |
NSIA BANK COTE D'IVOIRE |
ORGT |
ORAGROUP TOGO |
CFSS |
SAFCA CI |
SGBC |
SOCIETE GENERALE COTE D'IVOIRE |
SIBC |
IVORIAN BANKING COMPANY |
SECTOR- TRANSPORT
SDSC |
BOLLORE |
SVOC |
MOVIS CI |
SECTOR - AGRICULTURE
PALC |
PALM CI |
CISC |
SUCRIVORY |
SICC |
SICOR CI |
SOGC |
SOGB CI |
SPHC |
SAPH CI |
SECTOR - DISTRIBUTION
ABJC |
SERVE ABIDJAN CI |
BNBC |
BERNABE CI |
CFAC |
CAD/CAM CI MOTORS |
PRSC |
TRACTAFRIC MOTORS CI |
SHEC |
VIVO ENERGY CI |
TTLC |
TOTAL CI |
TTLS |
TOTAL SN |
OTHER SECTORS
STAC |
SETAO CI |
Source: Official bulletin of the BRVM listing of Thursday, December 30, 2020
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The Harmonized Index of Consumer Prices (HICP) is an indicator that makes it possible to assess price stability, one of the leading convergence criteria adopted for WAEMU member countries.
It is used to measure changes in the prices of a basket of goods and services consumed by households in the WAEMU zone. Its analysis accounts for either an increase or a decrease in consumer prices, and in either case allows for the quantification of price changes.
In December 2020, the HICP stood at 105.5 in the WAEMU zone, down 0.3% from its November 2020 level and up 2.2% from its December 2019 level [WAEMU (2021)].
The decline in the general price level in the Union in December 2020 compared to November 2020 is related to the price level declines in the following countries : Mali (-2%), Benin (-1.7%), Burkina Faso (-1.6%), Senegal (-0.7%) and Niger (-0.1%). These are countries for which there has been a fall in the price level of products within the "Food and Non-Alcoholic Beverages" functions. On the other hand, the opposite effect is noted for Côte d'Ivoire, Guinea Bissau and Togo, which experienced an increase in the price level within the "food and non-alcoholic beverages" functions.
We note that there is an effect of the closest neighbor of the price level from the East to the West of the WAEMU, which can be explained by the presence of similarities in several states (see figure).
It should be noted, however, that for the Union as a whole, inflation is 2.1% in 2020, a level below the 3% threshold, which allows member countries to meet the convergence criterion on price stability.
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Like other States, WAEMU member countries need financial resources that are complementary to regular revenues (taxes and duties), for the implementation of major economic projects (road infrastructure, hospitals, modern markets, airports, budget support, etc.), and more generally for the implementation of their economic development policies.
To meet these enormous expenses, the States have recourse, among other things, to WAEMU capital markets, particularly the public securities market, to mobilize resources. They generally borrow through the issuance of Bons Assimilables du Trésor (BATs) or Obligations Assimilables du Trésor (BATs), or bond issues in return for an interest rate.
BATs and OATs are debt securities issued by auction by governments seeking financing, but these two types of loans differ in terms of their repayment terms. A warrant is redeemable in the short term (up to 2 years) while a bond is redeemable in the medium or long term (over 2 years).
Bonds are generally longer-term securities issued by syndication on the regional capital market.
The table below presents the projected annual program of issuance by auction of Treasury bills and bonds by WAEMU states during 2021.
States |
First quarter |
Second quarter |
Third quarter |
Fourth quarter |
Year 2021 |
||||||||
BAT |
OAT |
Total |
BAT |
OAT |
Total |
BAT |
OAT |
Total |
BAT |
OAT |
Total |
Total mobilizations |
|
Benin |
30 |
210 |
240 |
51 |
100 |
151 |
35 |
90 |
125 |
55 |
95 |
150 |
666 |
Burkina Faso |
90 |
60 |
150 |
90 |
260 |
350 |
60 |
100 |
160 |
90 |
160 |
250 |
910 |
Ivory Coast |
340 |
140 |
480 |
35 |
225 |
260 |
30 |
135 |
165 |
30 |
188 |
218 |
1 123 |
Guinea-Bissau |
11 |
15 |
26 |
21 |
30 |
51 |
|
15 |
15 |
12 |
|
12 |
104 |
Mali |
75 |
160 |
235 |
50 |
130 |
180 |
25 |
135 |
160 |
20 |
135 |
155 |
730 |
Niger |
30 |
40 |
70 |
55 |
85 |
140 |
30 |
75 |
105 |
20 |
100 |
120 |
435 |
Senegal |
|
225 |
225 |
100 |
150 |
250 |
|
180 |
180 |
80 |
45 |
125 |
780 |
Togo |
25 |
160 |
185 |
|
165 |
165 |
50 |
110 |
160 |
25 |
50 |
75 |
585 |
Totals |
601 |
1 010 |
1 611 |
402 |
1 145 |
1 547 |
230 |
840 |
1 070 |
332 |
773 |
1 105 |
5 333 |
Source: Agence UMOA Titres. Data in millions of FCFA
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The Nigerian currency, the Naira has been losing value since the health and economic crisis. The IMF estimates a depreciation of more than 18% against the dollar. Whereas the Naira needed 0.5028 Naira for one FCFA on 02/01/2020, it now needs 0.6816 Naira on 12/02/2021, i.e. a depreciation of the Naira by more than about 35% against the FCFA. This instability of the Nigerian currency is also reinforced by the decline in oil resources and is reflected in particular in the prices of goods. The National Bureau of Statistics (NBS) estimated the inflation rate at 15.75% in December 2020.
Graph : Naira-FCFA exchange rate, since January 2021
Source: AJEB based on data from the Central Bank of Nigeria
While the IMF is advocating a devaluation of the NAIRA, we are assessing the potential effects on neighboring economies, particularly the Beninese economy.
Nigeria is one of Benin's main trading partners: in 2019, it was the 5th largest destination for Benin's exports. In a degraded scenario, the depreciation of the Naira against the FCFA will have a direct effect on the Beninese economy via trade. It will influence the import prices of goods from Nigeria and the prices in CFAF received by Beninese exporters. As a result, Benin's imports from Nigeria could increase. On the other hand, the loss of competitiveness of Beninese products vis-à-vis Nigeria will lead to a drop in exports of Beninese goods to Nigeria. Similarly, the decline in purchasing power in Nigeria due to rising inflation may reinforce this decline.
Moreover, although devaluation and depreciation of a currency refer to a loss in the value of a currency against a foreign currency, the two concepts differ from each other. When the loss in value of the currency results from the will of the central bank, we speak of devaluation (adapted for cases of fixed exchange rate regimes). Conversely, if the loss of value results from a free mechanism of the foreign exchange market (confrontation between the supply and demand of the currency), we speak of depreciation (a concept adapted to the case of a floating or flexible exchange rate regime).
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Capital markets are places where short (negotiable debt securities), medium and long-term securities (bonds, shares) are exchanged for currency.
The WAEMU capital market is composed of the money market and the financial market.
The money market can be defined as the short- and medium-term capital market. It is an over-the-counter, non-localized market. Established since July 1, 1975 and supervised by the Central Bank of West African States, the WAEMU money market was renovated in October 1993. It comprises two compartments:
- The interbank market: a meeting place where supply and demand for bank liquidity meet;
- The market for negotiable debt securities (commercial paper, negotiable certificates of deposit, etc.) open to all economic agents.
It should be noted that the market for government securities by auction is linked to the market for negotiable debt securities. This market is exclusively dedicated to financing WAEMU member states.
The Financial Market, created on July 3, 1996, can be divided into two distinct parts: the Primary Market and the Secondary Market.
The Primary Market is based on the issuance of new shares and bonds, while the Secondary Financial Market is where securities already issued are traded.
It is this Secondary Market which is organized by the Regional Stock Exchange (BRVM) with the Central Custodian/Settlement Bank (DC/BR) which guarantees the successful completion of operations.
The highest financial market authority is the Conseil Régional de l'Epargne Publique et des Marchés Financiers (CREPMF), which has powers of authorization, control and sanction.
Through this link between the search for and presentation of the funds required for the growth dynamics of any economy, the capital market performs several functions that enable it to :
- ensure the financing of WAEMU economies;
- the best management of state deficits;
- to create wealth for savers;
- facilitate the capital operations of companies;
- to serve as a reference for the valorization of companies;
- improve access to financing for businesses.
In our upcoming publications we will discuss the financial products available on WAEMU capital markets.
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The limited availability of resources at the national level leads to multifaceted economic interdependence resulting in international economic relations. These are manifested through demographic movements, trade in goods and services and capital. It is in this context of globalization and market integration that Benin is subject to the interaction of its trading partners. [Download the document to see the full publication]
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