For some years now the countries of West Africa have been working towards achieving a monetary and currency integration by introducing a common currency throughout the West African Monetary Zone (WAMZ). Through a common currency threshold west African countries are hoping to form a trade block that would have a bigger impact on international markets and also promote a better economic position for the entire region. The Economic Community of West African States Monitoring Cooperation Program (EMCP) was established in 1987 to evolve a limited currency convertibility and introduce a common currency in the sub-region.The first step taken towards the economic integration of West Africa was the establishment of the Economic Community of West African States (ECOWAS) in 1975.
Under the ECOWAS treaty, it was expected that member-nations would form a common market. Subsequently, the heads of state and government adopted the ECOWAS Monetary Cooperation Program (EMCP) IN 1987. The initiative was to bring all the countries together to form a single monetary Zone by 2000, from the eight currencies in the sub-region. The monetary integration is expected to help the creation of a single regional market. To achieve the ultimate objective of a single currency, member countries are required to implement a number of measures including the adoption of a market based exchange rate system. The member countries are: Benin, Burkina Faso, Cape Verde, Cote d’Ivoire, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo.
Although the single currency idea was conceptualized decades ago, the sub-region has been footdragging on a concept that would have facilitated economic integration and macro – economic advantage in the region. Despite skepticism about the prospects of this coming to reality, the ECOWAS Heads of State and Government has proposed a new date for the single currency which is the year 2020. The Central Bank Governors in the Economic Community of West African States, ECOWAS, have also accepted the proposal to shift the full implementation of the subregional monetary initial integration project till 2020. The deadline for the full implementation of the common currency project was January 1, 2015.
The decision to create a single monetary zone for West Africa was reached by Heads of State of the 15 member countries at a summit of the Economic Community of West African States, the region’s economic commission, in Lome, Togo in 1999. At that time, the currency of Francophone West African States already existed to facilitate economic integration among countries which use the CFA Franc as their currency. This came about courtesy of the African Financial Community. In order to accelerate the macroeconomic convergence necessary for a single currency across the entire subregion, six Anglophone Heads of State met in Accra, Ghana, in the year 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.
The implementation of that common currency for West Africa’s Anglophone countries was postponed four times before it was finally jettisoned. This further dimmed the hopes of a single currency for the sub-region. ECO is the proposed name for the common currency that the West African Monetary Zone (WAMZ) plans to introduce. The aim is to merge ECO with West African CFA France, which is used by French-speaking members of ECOWAS, and then ultimately create a common currency for West Africa. The convergence criteria set for member countries of the Economic Community of West African States seem to be the bane of the single currency project. Even though the criteria seems difficult to attain, they are however very essential. In order to implement the single currency, the regional economic body set some conditions for it’s members.
The four primary criteria to be achieved by each member country are: A single-digit inflation rate at the end of each year, a fiscal deficit of no more than 4% of the GDP, a central bank deficit-financing of no more than 10% of the previous year’s tax revenues and gross external reserves that can give import cover for a minimum of three months. The convergence criteria set by ECOWAS for members to attain before the implementation of the single currency.
These conditions have proven to be the main obstacles of the single currency programme. For instance, the first convergence criteria require all countries to achieve a single digit inflation of 5% or less. This is a difficult task for many of the countries involved. Experts have, therefore, asked for a revision of the convergence criteria to enable countries to be amenable to what they viewed as disadvantages to the survival of each country. There are also concerns that a single currency programme will lead to loss of monetary sovereignty, and might be capitalized upon by member countries with high per-capital GDP. The problem is compounded by the fact that West African countries are heavy importers of goods and services. For instance, Nigeria spends about USD$6.5 billion annually on imported food. The regions situation is further compounded by it’s unfavorable exchange rates.
Secondly, the regional economic body requires all member countries to achieve budget deficit to GDP ratios of 4% or lower before the single currency could be launched. 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. This is yet another herculean task. How can Gambia for instance whose public debt stood at 108% of GDP in 2015 be able to attain this ratio?. Nigeria which has one of the lowest debt to GDP ratio in West Africa will find it hard to achieve this ratio. Essentially, budget deficits have soared high and governments of the region have continue to borrow to finance public expenditure.
Industry watchers are of the opinion that unless and until the convergence criteria are revised to reflect the real macroeconomic situation in the sub-region, the single currency project will remain work-in-progress for a very long time. The sub-regions problem is further worsened by it’s slow economic growth and poverty. Why is a single currency even necessary? A single currency if well implemented, could help address West Africa’s monetary problems, such as the lack of independence of central banks and non-convertibility of some currencies. A single currency and its associated regional institutions could also boost investor confidence and promote trade within the sub-region. But unfortunately, Africa’s overseas trade represents 80% of total trade on the continent.
Trade between African countries only account for 10%, compared to 40% and 60% between North American and European countries respectively. And just as trade between African countries is low, trade between West Africa countries is extremely low. The sub-region’s largest partner which is the EU, accounts for 37.8% of total trade. It is worthy of note that Francophone countries have been using CFA Franc as their common currency since 1945 recorded less than 16% of intraunion trade. Launching a single currency for the sub-Region will also require creating and empowering new regional institutions, such as the West African Central Bank, to manage and supervise monetary policy for the member countries.
Fortunately, the regional commission has vowed to do what ever is necessary to achieve this goal. It is expected that a single currency and a regional central bank will help reduce corruption in the individual countries. One significant benefit from using a common currency is the lower costs of transactions. It will encourage production of goods and services within the region and to also strengthen the productive base of members economies, and improve agricultural productivity and industrial production. However member countries will lose the ability to use monetary policy to respond to different shocks On Oc tober 2 5 t h 201 3 , t he Extraordinary Summit of Heads of State and Government, appointed the Presidents of Ghana and Niger to oversee the creation of the single currency in no distant time.
The two Presidents constituted a Task Force, whose membership included representatives of the President of Ghana and Niger; Ministers of Finance of Ghana and Niger; Governors of the eight Central Banks of ECOWAS member States; ECOWAS and UEMOA Commissions; West African Monetary Agency (WAMA) and the West African Monetary Institute to advise them periodically on the monetary integration programme. The Presidential Taskforce on Common Currency for the West African Monetary Zone (WAMZ), have been holding series of meetings to accelerate the processes of the use of a single currency by 2020. The inaugural meeting of the Presidential Taskforce was held on 20th and 21st February, 2014 in Niamey. Subsequently, two other meetings were held in Accra on 7th and 8th July, 2014, with the last meeting held in Niamey from 4th to 6th February, 2015.
The membership of the taskforce was reviewed in 2015 to include the Presidents of Cote d’Ivoire and Nigeria, as well as the Ministers of Finance of the two countries. The revised roadmap on the realization of the ECOWAS single currency by 2020 was to be costed and sources of funding identified. The 4th of such meetings to fast track the process of a single currency for West African Monetary Zone was attended by members of the Presidential Taskforce, comprising, President Nana Addo Dankwa Akufo-Addo, of Ghana; President Muhammadu Buhari, of Nigeria; President Alassane Ouattara, of Cote d’Ivoire and President Mahamadou Issoufou, of Niger, who was the host. They endorsed the recommendations of the Ministerial Committee.
The Taskforce urged Member States to pursue the structural reforms of their respective economies to help them deal with fluctuations in the prices of raw materials and enable their economies to be more resilient to shocks. Furthermore, the Taskforce urged Member States to take the necessary measures, including the attainment of the convergence criteria, necessary for the creation of the ECOWAS single currency by 2020. The presidential task force on the ECOWAS single currency programme met in Accra with a deadline of year 2020 to all it’s member for the single currency.
The Ghanaian president Akufo-Addo has also urged the leaders to work towards achieving the implementation of the ECO, being the currency, and also work hard to remove hurdles that could impede its smooth introduction. He further noted that a single currency will help remove trade and monetary barriers, reduce transaction cost, boost economic activity and raise the living standard of the people of the region.
A communique issued after the meeting, showed that the leaders reaffirmed their political will to meet the ECOWAS single currency programme deadline by 2020, and to also ratify and implement all relevant ECOWAS protocols and conventions. They also reaffirmed the gradual approach where member states who meet the convergence criteria can start the monetary union while the other countries can join later. They encouraged members to continue to make efforts towards meeting the convergence criteria and to also strengthen the multilateral surveillance mechanism. The leaders adopted the revised roadmap for accelerating the creation of the ECOWAS single currency by year 2020. They instructed all the stakeholders to implement the revised roadmap and reaffirmed their commitment to fund the ECOWAS single currency programme by member states and their central banks.
In 2001, the West African Monetary Institute (WAMI) was set up with headquarters in Accra, Ghana. It is to be an interim organisation in preparation for the future West African Central Bank. Its function and organization was inspired by the European Monetary Institute. Therefore, WAMI is expected to provide a framework for central banks in the WAMZ to start the integration and begin preliminary preparations for the printing and minting of the single currency. In her presentation of a progress report on the preparedness of member countries at a meeting, the Director-General, West Africa Monetary Institute (WAMI), Dr. Egbuna said Gambia, Guinea and Nigeria attained three criteria each, adding that the Gambia missed the fiscal deficit criterion while Guinea could not meet up with the gross external reserves and Nigeria also missed inflation criterion.
Furthermore, Ghana and Liberia both achieved two criteria but missed the single digit inflation criterion. In addition, Ghana missed the fiscal deficit, while Liberia also missed the central bank financing region. According to Egbuna, none of the countries had met all the four criteria, but the average performance of the member countries of the zone improved as at December, 2017. She also said that Sierra Leone met only the gross external reserves criterion. ECOWAS Chairman and Nigerian President, Muhammadu Buhari has called on countries of the ECOWAS subregion to put in more efforts in order to achieve the single currency program by year 2020.