The West Africa common currency goal appears to be heading for the rocks!
It is actually no news that member states of the Economic Community of West African States (ECOWAS) are planning towards introducing a common currency to be used for monetary transactions in the sub-region. What could be considered news are rather the various contrary developments bedeviling the single money campaign.
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Over the past past decade, since the West Africa Common Currency idea was mooted, moves towards actualising the goal have been witnessing setbacks in almost all dimensions, leading to what appears to be a ‘perpetual postponement syndrome’.
The first step towards the economic integration of West Africa was the establishment of the Economic Community of West African States (ECOWAS) in 1975. In the same vein, the vision to introduce a common currency in the region started with the establishment of the Economic Community of West African States Monitoring Cooperation Program (EMCP) in 1987.
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However, a precise and clearly stated agreement to create a single monetary zone for West Africa was reached by the heads of ECOWAS member states at a summit in Lome, Togo in 1999. The decision is targeted at forming a trade bloc that could have a bigger say in international markets and promote a better economic outlook for the entire region.
ECOWAS which comprises 15 countries is broadly divided into 8 Francophone countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo) and 7 Anglophone countries (Nigeria, Ghana, Sierra Leone, Liberia, The Gambia and Cameroon). Meanwhile, the French speaking countries jointly use the CFA franc.
To speed up the macroeconomic convergence necessary for a single currency across the entire sub-region, six anglophone heads of state met in Accra, Ghana in 2000 and agreed to create a second monetary zone for the anglophone countries, with the ultimate aim of merging with the francophone countries. The aim was to create a single and harmonized monetary union for all of West Africa by 2004.
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In 2013, ECOWAS tasked Niger and Ghana with “coordinating” the single-currency campaign, and in 2014, a “task force” was set up to provide them with guidance. Central Bank governors of member states also met yearly to analyse and review the level of progress of the currency process ahead of the implementation time.
However, the deadline for the achievement of this goal which was initially slated for the year 2000 has continually been shifted, with the latest deadline being 2020.
It has been noted that a single currency could help address West Africa’s monetary problems, such as the lack of independence of central banks and non-convertibility of some currencies. Ultimately, a single currency and its associated regional institutions could also boost investor confidence and promote trade within the sub-region.
The West Africa Common Currency if achieved, could also help in presenting the whole of West Africa as an economic regional force in Africa and the rest of the world. It is also hoped that through the common currency, ECOWAS would be able to support the regional economy to be more integrated and have a strong exchange among member states.
The challenges and predicted side effects of implementing the West Africa common currency appear to far outweigh its potential benefits. The major challenge that has been standing in the way of achieving the ECOWAS single money has been the failure of member states to comply with the 10 laid down primary(4) and secondary(6) macroeconomic convergence criteria including inflation, budget deficit, harmonization of monetary policies and currency stability.
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On the aspect of inflation, it is requires that all countries achieve a single digit inflation of 5% or less, which has remained a very difficult task. In Ghana for instance, data shows that the average yearly inflation between 2000 and 2016 stood at 16.92%, which is far from a single digit. Nigeria, the largest economy in the region, recorded an average inflation of 11.92% between 2003 and 2016, a rate which also far exceeds 5%.
On the side of annual budget, every country is expected to record a fiscal deficit of not more than 4% of the country’s Gross Domestic Product (GDP). In other words, budget shortfalls should be 4% or less of the total market value of all goods and services produced in the respective member countries. From current statistics, it will indeed take a miracle for this to be achieved by year 2020! The African Monetary Co-operation Programme on its own part, has so far remained inconsistent.
“From 2012 to 2016, none of our countries has been able to persistently uphold the prime criteria in the programme for macro-economic convergence,” Marcel de Souza, president of the ECOWAS Commission, said at the fourth meeting of the Presidential Task Force on the ECOWAS Currency Programme held in Niamey, Niger on Tuesday, October 24, 2017.
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Coming to the side of the negative implications, the Nigerian President Muhammadu Buhari, at the meeting, cited the challenges being faced by the European Union (EU) as a result of the same goal to stress the impracticability of the West Africa common currency. According to President Buhari, disparities among macroeconomic conditions in ECOWAS countries have continued to widen over the years. He also had the support of the Liberian President in this stance.
One of the major negative implication is the very low level of trade ongoing among African countries. Available statistics show that foreign trade currently represents a whopping 80% of Africa’s total trade while trade between African countries accounts for a woeful 10%! So if the single currency is eventually achieved, there are no indications that it will in anyway improve trade within the West African sub-region.
Moreover, the resultant effect of loss of monetary sovereignty among member states is also looming as one of the negative implications of the ECOWAS single currency. Establishing a new currency would involve individual anglophone countries dropping their existing currency, as well as dissolving the CFA Franc being used by the eight francophone countries.
This will also entail pulling down all existing Central Banks and creating a new sub-regional one to which all member states will pay allegiance to.
Despite all the economic bottlenecks beguiling the ECOWAS Common Currency Programme, it has not been thrown aside. According to a communique on the last summit of the presidential; Task Force, the ECOWAS ministerial committee had been instructed to meet within three months to propose a new road map to fast-track the creation of the single currency by 2020.
The communique also said that a framework had been drafted which would facilitate a gradual approach that would enable countries who are ready to start the monetary union, with other countries joining later.
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