The West African countries single currency, christened the ECO, is set for launch in 2020. But how feasible is this launch date? Our correspondent examines the issues.
After about two decades struggle to integrate the economies and currencies of all West African countries into one, there seems to be no clear path to achieving this objective.
The Economic Community of West African States (ECOWAS) which comprises all the West African countries considers this a key objective to achieve and has pursued it relentlessly.
Just like the European Union attracted huge economic benefits with a single currency and market, the economic benefits are numerous to West African countries with a single currency.
Ayo Teriba, the CEO Economic Associates said a key benefit is fostering trade. “Currency difference is a well-known impediment to trade thus having a single currency in West Africa removes a major impediment to trade among countries in the region. A single currency will naturally facilitate trade,” he said.
The Central Bank of Nigeria Governor, Mr. Godwin Emefiele, speaking recently during the 52nd ordinary meeting of the Committee of Governors of Central Banks of ECOWAS Member States held in September 2018 in Abuja said there is “conviction that deeper integration of our different economies and harmonization of our currencies, amongst others, will help in stabilizing our economies by accelerating investment and trade in the sub-region; minimize transaction costs and bring about quality employment opportunities with improved standard of living for our people.”
Giving a progress report on the preparedness of member countries at the 37th Meeting of the Committee of Governors of the Central Banks of the West African Monetary Zone (WAMZ) held in Abuja last year, Dr. Ngozi Egbuna, the Director- General, West African Monetary Institute (WAMI) said a lot of work needs to be done if the 2020 deadline set by heads of governments in West Africa will be met.
West African Monetary Zone (WAMZ) comprises The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone. Their central banks were all represented at the meeting.
Dr. Egbuna had said the status of the macroeconomic convergence as at end of December 2017 showed that “the assessment of member states performance on the primary convergence criteria shows that none of countries met all the four criteria.” She however noted that the “average performance of the zone improved during the year under review.”
At the Dr. Egbuna said “The Gambia, Guinea and Nigeria attained three criteria each. The Gambia missed the fiscal deficit criterion, Guinea slipped on the gross external reserves criterion and Nigeria missed the inflation criterion. Ghana and Liberia achieved two criteria each. Ghana missed the inflation and fiscal deficit criteria, while Liberia missed inflation and central bank financing criteria. Sierra Leone met one criterion, the gross external reserves,” she explained.
Also speaking at the meeting, Mr. Emefiele called on member countries to continue to work towards reversing the structural and institutional deficiencies that have continued to stalemate the unification process, by working hand-in-hand with members and various fiscal authorities in narrowing budget deficits, suboptimal fiscal performance, and encouraging investments in infrastructure amongst others.
“As such, while we focus on the uniform achievement of the convergence criteria, we also must not lose sight of the importance of sustainable real convergence in the sub-region. This, in effect, is to ensure the attainment of optimal mix between the sustainability of monetary cooperation and the conditionality attached to the attainment of the macroeconomic convergence criteria,” he said, noting that member countries “desire for greater economic prosperity for the people through a common monetary union must not vitiate awareness of the potential adverse and contagion factors associated with unified monetary area and common currency.”
To address some of those concerns, Mr. Emefiele had called for the West African Monetary Zone Commission to be established ahead of the convergence.
“Fellow Governors, you would recall that at our last meeting in Banjul, The Gambia, we stepped down the proposal for the creation of a WAMZ Commission. I must say that now is the time and we cannot wait any longer to establish the Commission to drive our common interests and aspirations,” he said.
Commenting on the feasibility of the path to a single currency, Mr. Ayo Teriba, the CEO Economic Associates remarked that “a single currency cannot be achieved by wishes as there are preconditions to be met.” He noted that there are other impediments to trade that must be addressed before a single currency regime can be a success. One key impediment is tariff. The tariff wall among West African countries must go down.
Another key issue, Mr. Teriba said, is that there must be unification of the goods market. “Goods must travel freely within the region and there should be no restrictions at the boarders of member countries. This means goods can move freely from Ghana to Nigeria to Benin, without restrictions. That means, there must be a single market economy for the region.”
Citing the European Union as an example, he said they realized single market in 1992, 10 years after the single currency. The Euro was achieved in 2002.
In between the single market and single currency, he said Europe liberalized the labour market too. “This is also key. There must be free movement of labour within West Africa without discrimination,” he said.
Mr. Teriba who is also an economist and financial analysts said the financial system within the region must be harmonised. There must also be a West African Central Bank to be accessed by all member countries. Money must also flow freely.
“This shows that you can’t achieve single currency by beginning from the end. This is why ECOWAS has been talking about the single currency for about twenty years without achieving it,” he said.
According to him, the single currency as it stands now cannot happen in the next six months, thus we should work hard for the next five-year target from now, which is 2025.
Another economist who is familiar with international trade who chose to comment anonymously because his office is critical to the talks on the single currency said “the new ECOWAS currency is thought to be modelled along the European single market currency. It is a good policy and with the new African continental free trade area of African Union, it will enhance trade among African countries.”
“Note that preponderance of formal trade among African countries in general is with the outside world, specifically Europe, America and China. ECO will accelerate economic growth and employment among the single market currency nations,” he said.
He however said there are “still big hurdles to cross. For example, most West African countries are francophone and still have their economies, like their currencies, central banks and trade in general, tied to France. Are they ready to finally delink from that historical arrangement?” he asked.
Secondly, he said “Nigeria will be the biggest economy like France and Germany in the European Union.”
“How will Nigeria’s naira convergence be? Will it be cost effective and not injurious to Nigeria and Nigerians?” he asked further.
“Note that despite agreeing to the Maastricht treaty of 1992 setting up the European Union, it was some of the latter concern that made United Kingdom not to subordinate their currency Pound sterling to Euro at that time. Some of those concerns need to be addressed before launching the currency to make it effective, efficient and beneficial to West African economic integration,” he concluded.
Indeed, the concerns are germane, and how the ECOWAS will wriggle itself out of it with the current deficit infrastructure and small economic base of member countries, will tell whether the ECO will live or die.