On February 21 of this year, the fifth meeting of the presidential task force on the ECOWAS Single Currency Programme was held at the Accra International Conference Centre in Accra, Ghana, a small country located on Africa’s West Coast. As the name of the conference confirms, the purpose of the meeting was for West African countries to move toward a single currency by 2020.
According to Ghana’s president, Nana Akufo-Addo, the purpose of the conference is to “… Encourage production of goods and services within the region…(and to) strengthen the productive base (of local) economies, and to improve agricultural productivity and industrial production.”
The single currency is expected to unite a group of West African countries with a total population of 350 million, and a total economic output of $600 billion.
The idea of a single regional currency isn’t new. It actually began almost 20 years ago, but it has proven difficult to bring it to fruition.
ECOWAS, which stands for the Economic Community of West African States, is the sponsoring organization. The community was established in 1975. The drive to create a unified regional currency started in 1999.
The group includes 15 West African states, including Benin, Burkina Faso, Cape Verde, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. The collective region’s population is expected to grow to 500 million within 20 years.
A deadline of 2020 has been set for implementing the unified currency.
SINGLE CURRENCY CRITERIA FOR PARTICIPATING COUNTRIES
Much as the European Union imposes fiscal and economic rules on its member nations, the single currency program also has parameters for participating countries.
There are four primary criteria that are expected to be achieved by each member country:
- Maintaining a single digit inflation rate at the end of each year
- A fiscal deficit not to exceed 4% of each member country’s gross domestic product (GDP)
- Central Bank deficit financing not to exceed 10% of the previous year’s tax revenues
- Gross external reserves that can provide important cover for at least three months
Condition #2 has proven especially contentious. The community is actually requiring all participating countries to achieve an inflation rate of 5% or less. Given that inflation rates within member countries vary significantly, and are dramatically higher in some, achieving this goal will be no easy task.
Uniform criteria have also proven to be a tall order in the already well-established European Union. Member countries are having difficulty staying within similar spending and inflation restrictions. It will be significantly more difficult for a group of countries that are far less developed, and much less familiar with any form of fiscal restraint.
That’s the whole purpose of the union, but getting to that point will be problematic. Participating members have already petitioned the group to revise the criteria to make it more consistent with economic factors that predominate in the region.
WELCOME THE “ECO”
If you’re familiar with the euro, the Eco shouldn’t come as a surprise. The currency will apply to what is informally known as the West African Monetary Zone (WAMZ). The West African CFA Franc is a currency already in use by French-speaking members of ECOWAS, and the expectation is that the Eco will eventually be merged with it to create a common West African currency.
The CFA Franc is currently used by eight ECOWAS member nations, including Benin, Burkina Faso, Guinea-Basau, Ivory Coast, Mali, Niger, Senegal and Togo. Since the CFA Franc is pegged to the euro, and guaranteed by the French Treasury, it’s currently functioning as a stable currency. It remains to be seen if these eight countries will join the other seven – Nigeria, Ghana, Guinea, Sierra Leone, Gambia and Liberia – in a monetary union. In point of fact, the CFA is already functioning as a stable currency. That’s a benefit that nations already participating in the currency are hesitant to abandon.
The monetary union is referred to as the West African Monetary Union (WAMU). The remaining seven ECOWAS members are each using their own domestic currencies. The complication is that none of those currencies can be converted with the others.
The primary benefit of a unified regional currency is that it would reduce trade barriers between member nations. That would cause cross-border trade to increase, providing economic benefits for each of the 15 member states.
Last fall, it had already been acknowledged that the group is falling short of the goal for 2020. Complying with the four required criteria for each nation has largely failed up to this point. In fact, not a single one of the 15 countries were able to consistently maintain the desired criteria between 2012 and 2016.
The hope, however, is that a small number of the 15 countries will be capable of implementing the requirements. That small group of countries can form the core nations relying on the Eco, while others join as they meet the criteria.
But one of the most difficult hurdles is that Nigeria is not necessarily on board with the common currency. That’s no small problem. Nigeria is both (by far) the largest member by population, and by economic output.
Though both Mali and Niger are larger in land area, Nigeria has a population of about 185 million people, which is slightly more than half the total population of ECOWAS. Its GDP of $460 billion represents about 75% of the total economic output of the block. As well, Nigeria is one of the world’s largest oil producers. It is the 12th largest producer of oil in the world and the eighth largest exporter. What’s more, they have the 10th largest proven oil reserves in the world. Oil accounts for 40% of Nigeria’s GDP, and 80% of government revenues.
At the present time, Nigeria doesn’t have a strong need for a unified currency with its neighbors. Its bigger concerns are improving its domestic conditions, and avoiding the potential for corruption and cross-border capital flight to and from other member nations.
It will be difficult to imagine a unified block achieving a single currency without what is by far the largest and richest member.
In addition, the failure of the member countries to reach the criteria laid out by the group has led to several postponements in the implementation of the monetary union. 2020 remains the goal, but thus far it’s been something of a moving target. The original deadline was set for 2003, but that was postponed. Further deadlines, set for 2005, 2009, in 2015, were also missed.
The current goal is to keep the negotiations on track, to give the member nations an opportunity to comply with prescribed regulations, as well as to achieve political acceptance of the union within the various states.
EVEN SUCCESS ISN’T CERTAIN
Given that Nigeria represents both (by far) the largest population and economy in the region, the success or failure of the West African Monetary Union will rise and fall based on the domestic situation in that country.
That hasn’t necessarily been a comforting prospect up to this point.
Despite its oil wealth, Nigeria has a long history of ethnic, political and financial problems.
Nigeria’s population is split about evenly between Christianity and Islam. With the two living side-by-side, there are significant tensions. The country also has more than 500 ethnic groups, with a wide variety of languages and customs. The country seems to be more of a confederation than a nation, in the Western sense of the term.
Politically, the country has had a history of instability. This includes corruption, financial mismanagement and military rule. This has affected the security of the nation. For example, prior to the Nigerian Civil War of the late 1960s, the country was self-sufficient in food. However, agricultural output has failed to keep up the country’s rapidly growing population.
Population itself is a significant issue in Nigeria. The country has seen a population explosion, growing by 60% between 1990 and 2008 alone. The UN has estimated that the country will have a population of between 505 million and more than one billion by 2100, with a midrange estimate of 730 million. Even if the country makes it only to the lower range estimate, that will still be a near tripling of the population from where it is now, and in only slightly more than 30 years.
As well, nearly half of Nigeria’s population are children, 14 and younger.
The country is beset by crime, particularly drug trafficking. It’s a major shipping point of heroin from Asia to Europe and North America. It also ships a significant amount of cocaine from South America to Europe and other African countries.
The crime wave extends to the political culture. In 2015, Nigeria’s president revealed that as much is $150 billion had been looted from the national treasury since 2005.
A CLOUDY FUTURE
It certainly seems as if a monetary union, under a unified currency, would benefit the 15 West African nations. It would not only improve cross-border trading, and stimulate local economies, but it would also be likely to bring in greater amounts of foreign investment. A stable currency is the key to it all. However, with eight of the members already participating in the euro-pegged CFA Franc, and enjoying a comfortable level of currency stability, full unity seems unlikely.
As well, the union can’t go forward without its largest member, Nigeria. That country’s future goals don’t seem to be in line with those of the other countries.
From an investment standpoint, it doesn’t seem like there is a rational play here. And even if there might be, the union seems unlikely that take place anytime in the near future.