West Africa’s long-stated goal of having a unified currency is about to face another major test. This is because the Francophone bloc in the Economic Community of West African States has taken a giant step that has restructured its currency administration. The CFA, which had been in use by the eight-country grouping since 1945, has been replaced by the eco as its common currency. In the process, the other seven countries in ECOWAS, especially Nigeria and Ghana, have been left desperately clutching at straws.
Determined to achieve the initiative, Benin Republic, Burkina Faso, Equatorial Guinea (the only non-Francophone), Ivory Coast, Mali, Niger, Senegal and Togo declared eco as their new currency on December 21. Although they stated that the new currency was not tied to the French franc – the CFA was – the eco is, however, tied to the euro (the European Union currency). The French franc has become defunct anyway, with France having dropped its national currency to adopt the euro.
This amorphous transmutation was not lost on observers, as the new currency arrangement with the euro was declared in the presence of the French President, Emmanuel Macron, in Abidjan by President Alassane Ouattara of Ivory Coast. With this, France still has a key role to play in the economies of these countries, having been their colonial master.
Instantly, Ghana, which had stated its desire to adopt the eco, has now amended its position, saying that it would adopt the currency with a clause that it should not be tied to the euro. Nigeria, by far the sub-region’s largest economy, with a Gross Domestic Product of $397 billion, while considering its options, issued five “non-negotiable terms” as its response, including the provisos that, for the eco to be in use, there must be currency flexibility, member states should pursue appropriate monetary policies and undertake structural reforms, so as to meet the convergence criteria, which is fundamental.
For long, ECOWAS, which was established in 1975 with Nigeria leading the initiative, has struggled vainly to achieve its goal of a single currency. Comprising mainly of Anglophone and Francophone countries, it has since missed all the timelines for the introduction of the eco. Originally, 2000 was proposed as the commencement year for the use of eco. Having failed to meet that date, fresh deadlines were set for 2005, 2010, 2014 and 2015. With the economies of these countries still crawling and political instability plaguing most of them, all the dates failed to materialise, compelling another timeline of January 2020. With Nigeria, which accounts for 73 per cent of the region’s exports, yet to commit unequivocally, the new take-off date too is moot.
In truth, ECOWAS has plenty of issues to chew over before the eco can become operational. Essentially, there are yawning gaps in the harmonisation of microeconomic policies of the member-states, non-compliance with currency convergence criteria and the non-consensus regarding the choice of monetary policy.
Indeed, the West African Monetary Institute prescribes that before eco is inaugurated, member-states should have a single-digit inflation; a fiscal deficit of not more than four per cent; a central bank deficit-financing of no more than 10 per cent of the previous year’s tax revenues and gross external reserves that can give import cover for a minimum of three months. Moreover, each country is under obligation to sustain a tax revenue equal to or greater than 20 per cent of the GDP; have a wage bill to tax revenue equal to or less than 35 per cent; public investment to tax revenue equal to or greater than 20 per cent, and a stable/positive real exchange rate.
Doubtlessly, this is a back-breaking to-do-list. Since WAMI’s prescription, only Ghana and Togo had succeeded in meeting these convergence criteria briefly before slipping back again. The World Bank Doing Business Report 2019 states that Mali’s 48-hour border clearance of goods – the fastest in the sub-region – pales significantly to Botswana’s five hours. Nigeria, at No 182 on the DBR list, had a clearance time of 135.4 hours, Ghana (156) 108 hours and Ivory Coast (162) 239 hours. This impedes regional integration, but that is not all.
Painting a dire picture, the 2012 Annual West African Monetary Zone report notes gross disparities in the ECOWAS. Guinea Bissau, for instance, had a GDP of $7 billion, lower than Abia State’s $8.7 billion GDP. Overall, the ECOWAS GDP declined to 6.99 per cent in 2012 from 8.7 per cent in 2011; the currency convergence criteria fell significantly from 79.2 per cent in 2011 to 62.5 per cent in 2012; and inflation rate rose from 11.6 per cent in 2011 to 12.6 per cent in 2012.
During this period, Nigeria, which ought to lead the gamble, experienced a wild economy. It recorded high recurrent, low capital budget spending, high debt servicing and a meagre tax-to-GDP ratio of 9.6 per cent in 2011 (the highest), 5.3 per cent in 2011 and 5.7 per cent in 2017, says the Organisation for Economic Co-operation and Development. With the African average at 17.26 per cent, Nigeria is unable to support a robust economy itself. Its inflation is 11.85 per cent currently. The Central Bank of Nigeria has been defending the naira with huge billions of dollars from unimpressive external reserves, though it exports crude oil. Thus, it is a pipe dream to assume that Nigeria, which shut its land borders to its neighbours last August, can cater for the burdens of others.
Although a single currency has several advantages, especially in seamless trade, the basic tenets underpinning it are lacking in ECOWAS. Therefore, the President, Major General Muhammadu Buhari (retd.) should not rush Nigeria into the eco bandwagon just yet. The regime should work to put the economy on a sound footing before taking any decision to embrace the sub-region’s currency convergence. It should proceed with caution, while working to deepen regional integration.