Fading prospects for a West African single currency

Nearly two decades after anglophone West Africa unveiled a road map to establish a single currency the prospects are still dim despite political will in Ghana.

To most economists who believe that regionalism can unlock Africa’s huge under-exploited economic potential, a partnership between Ghana and Nigeria holds the key for the western part of the continent. Between them, the two largest economies in West Africa account for about 68% of the sub region’s Gross Domestic Product even as it is finally striving to turn its 40 year vision of economic integration into concrete reality after spending decades sitting on its hands in this respect.

However, Nigeria is proving to be far less enthusiastic about regional economic integration than Ghana is and this is threatening to be a major set back for the former which wants unfettered access to the regional market in order to attract larger investments in productive capacity than what its own  less than 30 million strong consumer market can sustain. Instructively Nigeria, Africa’s largest economy is one of the very few countries that has bluntly refused to sign up to the African free trade area now being established and which secretariat Ghana enthusiastically wishes to host in Accra. In response, President Nana Akuffo-Addo has devoted considerable time and effort to try and persuade Nigeria to sign up.

But this is just the latest regional initiative that Nigeria is reticent about being a part of, making official statements showing commitment but failing to back up its rheotic with policy action. Which is why Ghana’s government is now turning back to an earlier major economic integration initiative that is still lacking Nigeria’s crucial backing in actual practice.

This is the Eco, a single currency that is to be used by all the English speaking countries in West Africa – Ghana, Nigeria, Sierra Leone,             Liberia and The Gambia – as well as Guinea, the only French speaking country in the sub region which is not part of the CFA franc currency zone. When – or rather if – it starts up it will actualize West Africa’s Second Monetary Zone [christened WAMZ   for short]  leaving the sub region with just two currencies and thus paving the way for an evntual merger of the two to create a long craved for single West African currency.

However, so far, little has gone according to plan. Unlike with the CFA Franc, which is supported by the French treasury and therefore pegged to the Euro, the Eco would have to get by on the strength of the economies of the respective member nations. This has required stringent primary and secondary convergence criteria , the key ones being single digit inflation, a fiscal deficit of not more than 4% annually, a limit on central bank financing of national fiscal deficits and gross international reserves of not less than three months import cover.

However, none of the aspiring member states have been able to sustain adherence to those criteria, over the past decade, thus forcing one postponement of the take off date after another. Currently the idea is that if more than one country has met the criteria by 2020, then they can start and the others will join as they too meet the convergence criteria. But even this will be a challenge; few countries if any can expect to fufill all the criteria within the next two years.

Worse still, interest has waned considerably since those heady days when the single currency initiative was first unveiled, especially in Nigeria, where the benefits of joining it are now being openly questioned by both public officials and private business people.

“How do you ensure that it does not look like unfair imposition especially when Nigeria’s economy is so much bigger than theirs?” asks Michael Adedotun, responding to an online survey conducted by This Day Online. “That will cause serious bad blood.”

Adedotun ‘s sentiments are echoed across   Nigeria. “Nigeria dos not really need the echo; what it truly needs presently is to keep its house in order: Lagos resident Patience Eneyeme said in the same survey.

“The idea of of a single currency in West Africa, though appealing, may not benefit Nigeria in the long run because of the intensified issues of corruption  and cross-border capital flight across member nations, Abuja resident Iheanyi Chukwudi said. He added that “an Eco may encourage looting and this would be counterproductive to development.

The Gambia in particular has been skeptical  right from the start.

In contrast though, Ghana now sees its future in the eco. “The 350 million market is important to us for our industrialization drive” insists Ken Ofori-Atta, the country’s finance minister. “I think that if Ghana positions itself well we will be a great beneficiary. Economic activity in the ECOWAS region is improving and most of the large economies are experiencing economic rebound.”

President Akuffo-Addo himself appears even more enthusiastic than his finance minister. “We remain determined to have a single currency which would help remove trade and monetary barriers, reduce transaction costs boost economic activities and raise the living standards of our people “ he insists.

Despite the political will in Accra though. the economic challenges posed to the initiative to establish a second sub regional currency are increasing. The crash in oil prices since 2014 have revealed how volatile             Nigeria’s macroeconomic performance can be due to the inordinate dependence it has on oil revenues. The oil price crash, combined with weak global market prices for both gold and cocoa has weakened then cedi significantly too. Now, the end of monetary easing in The United  States has had dire consequences too, for West African countries that have opened up their domestic debt markets to foreign portfolio investors.  They are now faced with the proposition of raising domestic interest  rates in order to make local currency denominated securities more competitive against US dollar denominated securities.

All this has exposed the fundamental volatilities of the domestic currencies of the aspiring members of the eco currency zone and will make the meeting of the primary convergence  targets all the more difficult to achieve. Thus , even as the political rheotic remains encouragingly positive, the underlying economics have take the little shine already achieved off the proposed eco.