Just as well the Economic Community of West African States (ECOWAS) just announced a freeze on the Eco, its proposed regional single currency, earlier expected to take off this year.
Though the Eco would have boldly announced ECOWAS regional economic integration in real terms, to prime the African common regional market, which would have given a great fillip to intra-African trading, via different continental blocs, neither the Eco politics nor economic fundamentals appears right.
But the Eco freeze should help to focus on its political and fiscal challenges. In the final analysis, there appears no alternative to freer and near-seamless regional trade.
For once, from Abidjan to Calabar, the West African coast booms with informal and black market trade. For another, such integration would afford Nigeria, the clear regional economic giant, ample opportunities to test-run its exports with its immediate neighbours (and vice versa), before essaying Africa-wide and more extensive global forays.
But for all those futuristic appeals, the Eco just won’t wash now; and the main reason is the political economy, inherited from colonial times.
ECOWAS has two monetary zones, which it hoped would birth a single currency. One is the CFA Franc zone, made up of eight Francophone countries, under the West African Economic and Monetary Union (UEMOA), midwifed and guaranteed by their former colonial master, France.
The member countries: Côte d’Ivoire (the biggest economy in that zone), Senegal, Togo, Benin, Burkina Faso, Guinea Bissau and Niger, are so tethered to mother France you’d be permitted to think they are no more than showrooms for France metropolitan products. More than half-a-century after flag independence, those dynamics have not changed. Bissau though has Portuguese colonial heritage, with its currency dubbed Franco CFA.
That the CFA zone were even planning to change CFA to Eco, and continue with business as usual from 2020, brought out, in bold relief, the dire challenges facing the single currency scheme.
Since Nigeria commands two-thirds of the ECOWAS gross domestic product (GDP), is three times bigger than the combined UEMOA market, and is not even a member of the CFA bloc, that move would have been tantamount to laggards plotting the way to a new currency territory, in which they would bear least risk and liability. That would explain why Nigeria’s President Muhammadu Buhari whistled the scheme to a virtual, if temporary, stop.
The West African Monetary Zone (WAMZ), ECOWAS second monetary zone, features Nigeria (its biggest economy), Ghana, Sierra Leone, The Gambia (all quad, former British colonies), Liberia (West Africa’s oldest republic with American affiliation) and Guinea Conakry (former French colony that in 1958 rebelled against France’s colonial assimilation plans, and got summarily thrown out of the CFA zone).
But neither UEMOA nor WAMZ is Cape Verde, the former Portueguese colony off the West African coast and ECOWAS 15th member. But it’s upbeat on the Eco.
The common traits of WAMZ countries are different currencies (unlike UEMOA’s sole CFA), monetary independence from their colonial Central Banks, and a weaned economy from the former colonial metropole, no matter how tenuous or crude.
A single currency, therefore, coming from two monetary zones with diametrically opposed world views, was always going to be testy. Still, ECOWAS itself birthed from such contradictory world views, and nothing really is impossible, with political will. But even that will must be subject to key convergence economic criteria.
For the Eco, those criteria are 10 — four primary, six secondary — as prescribed by the Accra-based West African Monetary Institute (WAMI). The primary demands: a single-digit inflation rate at the end of each year, a fiscal deficit of no more than four per cent of 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 six secondary criteria are: prohibition of new domestic default payments and liquidation of existing ones, tax revenues should be equal to or greater than 20% of GDP, wage bill to tax revenue should equal to or not less than 35%, public investment to tax revenue must equate or be greater than 20% , a stable real exchange rate and a positive real rate.
Since WAMI was set up in 2001, for a putative Eco billed first for 2003, only two countries, Ghana (a medium ECOWAS economy) and Togo (a clear economic featherweight) had ever achieved these criteria in any single year. No wonder then that the Eco was moved from 2003, to 2005, 2010, 2015, and finally 2020. Yet, the Eco continues to echo how it isn’t grounded in reality, with this latest postponement!
Still, this should be no time for despair, to drop the Eco dream. It is rather time to re-strategize to get both the politics and economics right. That is why it is reassuring that ECOWAS is retreating to plot a more gradual path to the Eco and not abandoning the unified currency dream.