Another postponement of ECOWAS common currency

Our political leaders and technocrats shifted the commencement date to 2005, then 2010 and to 2014. The target date for the launch of WAMZ was again moved to January 2015. These constant shifts are obviously a reflection of the caution necessary before embarking on such a complex enterprise.Full currency integration will follow later (in 2020), […]

Our political leaders and technocrats shifted the commencement date to 2005, then 2010 and to 2014. The target date for the launch of WAMZ was again moved to January 2015. These constant shifts are obviously a reflection of the caution necessary before embarking on such a complex enterprise.
Full currency integration will follow later (in 2020), when countries in the Union Monetaire I’Ouest Africaine (UMOA) – made up of Benin, Togo, Cote d’Ivoire, Niger, Senegal, Burkina Faso, Mali and Guinea Bissau – are expected to dump their own common currency, the CFA Franc, and join the Ecozone.
The integration is to help realise the objectives of the Economic Community of West African States (ECOWAS) of forging a big economic block and facilitating free trade and movement in the sub-region, as well as to enable it have a bigger say in international economic and financial matters, make the region more resilient to changing global forces, and enhance its prospects. Additionally, the single currency will promote price stability across the region, help minimise exchange rate uncertainty, promote trade and economic growth, and thus enhance people’s welfare within the region.
ECOWAS had earlier established West African Monetary Institute (WAMI) in 2001, with headquarters in Accra, Ghana. It is a precursor to the future West African Central Bank, and was immediately charged with working out a framework for such a full integration, and with starting preliminary preparations for the printing and minting (and subsequently issuing) of the physical money, when the time comes. The institute set out what measures must be met before the integration. They are the Four Primary Convergence Criteria, along with six secondary ones. The primary criteria are: a single-digit inflation rate at the end of each year; a 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 having gross external reserves that can give a country import cover for a minimum of three months.
Unfortunately, except Nigeria which has managed to attain all the primary criteria recently (thanks to rebasing), and Ghana that attained it once before, no country has been able meet all these in any given year. Inflation and fiscal deficit targets continued to be the more challenging criteria, while central bank financing and gross external reserves were the more frequently satisfied ones. As our CBN Governor Godwin Emefiele pointed out recently, “The road to meeting the January 1, 2015 implementation target date would appear bumpy, especially when the member countries are still grappling with sundry macroeconomic convergence challenges and lacking the capacity to meet the criteria for the proposed union on a sustainable basis.” He urged the countries to redouble their efforts as he announced another postponement, to 2020.
Luckily, arrangements for the Common External Tariff for ECOWAS countries have been completed, and the common market is expected to take-off on New Year’s Day 2015, while the convergence criteria have now being reduced from 10 to six. While relaxing stringent criteria may be tempting, we would advise caution. It is better to delay the common currency as long as we have to, and concentrate on building the common market, rather than drag our countries head-on into an arrangement we are not quite ready for. The examples of Italy and Greece, struggling to survive in the Eurozone, should be instructive enough. We should concentrate first on implementing those protocols that enhance free movements of goods, services and people before imposing unrealistic preconditions on countries at different stages of development, different fiscal and monetary requirements, and different political realities. If we can get the common market right, the common currency would evolve easily. We must also educate our people on these plans, and persuade them to buy into them. Otherwise we would not succeed.