How ECOWAS can achieve single currency
For over two decades now, leaders of the Economic Community of West African States have struggled to establish a single currency that would help facilitate trade in the sub-region, but economic headwinds continue to put the aspiration on hold; BENJAMIN UMUTEME reports.
Since the early 2000s, the 15-member Economic Community of West African States (ECOWAS) has been pursuing a common currency agenda, centered on the “eco,” with the intention of reducing barriers to doing business across the region and increasing trade overall.
While the implementation of the new currency has been postponed due to hurdles in macroeconomic convergence across the countries and the disruptions caused by the Covid-19 pandemic, among other challenges, many policymakers remain keen to forge ahead, with implementation now tentatively set for 2027. Even the tentative 2027 may further be pushed forward.
Difficult economic environment
The West Africa Monetary Institute (WAMI) noted that the dream of a single currency for the West African Monetary Zone would be difficult to with the current global realities.
According to WAMI, global economic shock was adversely rubbing off on the zone.
In his opening remarks at the 48th meeting of the Committee of Governors of Central Banks of members of States of the West African Monetary Zone (WAMZ), the Director General of WAMI, Dr. Olorunsola Olowofeso, said high inflation, interest rate, currency depreciation, and sovereign debt crises compounded by widespread insecurity continues to hamper growth in the zone.
Convergence criteria
For the single currency to be implemented, ten convergence criteria were set out by WAMI which includes four primary and six secondary criteria.
Up to 2011, only Ghana has been able to meet all the primary criteria in any single fiscal year.
The four primary criteria are: A single-digit inflation rate at the end of each year; fiscal deficit of no more than 4 per cent of the GDP; central bank deficit-financing of no more than 10 per cent of the previous year’s tax revenues; and a gross external reserves that can give import cover for a minimum of three months.
While the six secondary criteria to be achieved by each member country are: Prohibition of new domestic default payments and liquidation of existing ones; Tax revenue should be equal to or greater than 20 percent of the GDP; Wage bill to tax revenue equal to or less than 35 percent; Public investment to tax revenue equal to or greater than 20 percent; stable real exchange rate; and positive real interest rate.
Initiative threatened
Speaking with Blueprint Weekend, the managing director of SD&D Management Limited, Gabriel Idakolo, said the single currency initiative is being threatened with the currency situation in the ECOWAS.
According to Idakolo, realities on ground do not evoke confidence about achieving the zone’s single currency agenda.
He said, “The WAMI is looking at the convergence criteria that each ECOWAS member state needs to achieve in trade, GDP and inflation figures which are presently far from the objectives for achieving a single currency zone.
“This initiative is even presently in jeopardy with the pulling out of Niger, Guinea and Bukina Faso from ECOWAS. The only relative success achieved by ECOWAS has been the ease in movement of ECOWAS citizens among member states.”
In a chat with this reporter, a political economist, Adefolarin Olamilekan, described as unfortunate the region’s inability to achieve its single currency initiative over the years.
He said current economic challenges facing the region such as low productivity, fiscal imbalance and inflation not to forget the twin crisis of insecurity and political instability leading to military coup and counter coup continue to act as a drawback to the accomplishment of the feat.
“It so unfortunately the ECOWAS over the years failed to achieve a single monetary currency fiat for its economy and development.
“While lots of issues and complicated internal factors may have retarded the region’s progression in this direction, the challenges arising from intra-trade remain a hanging fruit deficit to achieving it. More so, as the majority of the members of the regional body are still tied to trading with their colonial masters and advanced economies across the globe due to technological advancement and luxuries in trade items,” he said.
Trade policy
Analysts say a single currency would drive intra-ECOWAS trade. However, they note that intra-ECOWAS trade is largely constrained by weak supply response to regional market opportunities and lack of export competitiveness arising from poor logistics, infrastructure, institution and policy implementation. Thus, between 1999 and 2009, ECOWAS share of imports ranged between 11.67 per cent and 17.04 per cent.
According to the Africa Competitive Report, this however reduced to a range between 10.2 percent to 16.3 percent in the period 2010 to 2016 with its exports share in the same period, ranged between 8.40 per cent to 14.18 per cent and 5.1 per cent to 11.4 per cent; which suggests that the region is a net importer,
Furthermore, the region’s exports were $100 billion in 2009 from $20 billion in 1999, with imports rising to $60 billion from $18 billion. The region has been characterised by deteriorating and negligible share of trade.
Also, the report further stated that the region’s share of world trade was 0.7 per cent in 1980, 0.6 per cent in 1990, and 0.3 percent in 2000, falling abysmally to 0.02 per cent in 2015. Intra-African and ECOWAS trade has also lagged with a value below nine per cent of total trade.
The United Nations Conference on Trade and Development (UNCTAD) puts total intra-regional trade at about 12 percent while trade between the region and the rest of Africa is 5.6 per cent.
The political economist noted that without a harmonised regional trade policy implementing the single currency would still be challenging.
Adefolarin said, “Having a formal and tailored trade policy suitable for countries within the region is desirable and critical for the sustainability of the single monetary initiative. In other words, the key to make the project work is to prioritize unhindered trading within the region at all times.
“Another is to have a trading policy framework that member nations see as vital to the success of overall economic benefits to their citizens. A robust trade policy is empirical to maintaining a viable single monetary policy for West Africa.”
Idakolo said, “The trade policy amongst member states has also been fraught with bureaucratic bottlenecks that has made trading outside ECOWAS member countries easier than within member states.”
As a way of achieving the single currency that the zone dreams about, Idakolo noted that, “The ECOWAS can only achieve the single currency agenda if the convergence criteria are revisited looking at the reality of ground in various ECOWAS member states with a view to fine-tune them.
“There must also be a deliberate Cooperation with French speaking member states using CFA francs because they can truncate the single currency which I believe their former colonial master, France, is not adequately supporting.
“Lastly, ECOWAS must look critically at its protocol as it regards coup d’etat and stability in member states because the objective of single currency zone can only be feasible with democratic governments in ECOWAS member states.”
Speaking further, Adefolarin said the sub-regional body must develop a homegrown market strategy, a single currency monetary instrument that integrates trade and intra-trade policy framework in its full implementation.
“As a fiat sub regional binding law accepted by all as the leeway toward fostering the improve positive trade balance as against balance of trade deficit, and fight inflation caused by international trade price transmission, increase productive, generate employment, fight poverty, leap toward technology advancement, reduce external influences on sub region market, toward food security and food sufficiency，
“Secondly, establishing acceptable trading minimum standard on goods and service genuine to upholding the value of single currency adopted, the priority in engaging in trade essentially intra trade amongst member state of ECOWAS remain the defining factor, however, establishing a uniform minimum standard that would we cannot relent in over-emphasising the critical place trade and intra-trade in the sub region.
“Thirdly, embracing digital currency that is peculiar to the sub-region would go a long way in achieving the goal of having a single currency, this is opinion is tied to the fact that e-commerce, online trading of buying and selling would further make ECOWAS single currency easily adapted as a medium of exchange. We anticipate this would form part of its framework.”
He said further, “Fourthly, the measure of value of any currency is the level of productivity, in this case for the sub region to succeed, it must rely on production. In this case concentration on the productive sector of the economy must be fast tracked through tuning every resource from the mining, agriculture and exploration sector and sub-sectors into finished consumable goods and items. This would help us to appreciate the goal of having a single currency in the sub-region, because it is not going to be a policy that would exist in a vacuum of low productivity or importation dependent on other countries.
“Lastly, tackling insecurity and stabilising the political environment is another serious concern. In the sense that political turmoil is damaging to laudable policy such as the single currency, so the regional body must emphasise the necessity of regular election and timely political transition, Although, this must be tied to good domestic economy and development welfare for people of the region.”
Analysts say the earlier the zone tackles the underlying issues that have slowed down the achievement of the single currency initiative, the better for the people of the region.
