The delayed implementation of the eco – a common currency being promoted by the West Africa Monetary Zone (WAMZ) - may just be a blessing in disguise. The six member countries of WAMZ are watching closely as current developments in the euro zone reveal the  possible dangers of monetary unions, Mustapha Somed writes.

Frustration has long marred the proposed implementation of a common currency and the adoption of the eco. Soon after the decision to create the eco was reached in December 2000, the disjointed economic conditions of the member countries instantly relegated the initiative to a cherished policy paper. With the euro zone crisis in full swing, the eco risks to be remain as such forever.

ECOWAS’s lack of a political will to stand by its own harmonisation commitments and policies, in addition to certain self-seeking attitudes by member countries have also militated against the realisation of the eco dream.

As a result, the West African Monetary Institute (WAMI), the body that has the power to recommend to the heads of states of ECOWAS to commence the issuance of the eco, has had to postpone the implementation on three occasions. WAMI’s reasons for dragging its feet can be very simply summarised: some member countries are still struggling to attain the prescribed economic indicators relevant for the smooth take off of a common currency in the WAMZ area.

Per WAMI’s convergence criteria, each member country of WAMZ is required to attain single digit inflation, central bank financing of government deficit of less than 10 per cent of the previous year's revenue, a government budget deficit of four per cent of Gross Domestic Product (GDP) and accumulated foreign exchange reserves of at least three months of import cover.

Once these are achieved across the board, the eco issuance process could commence but such economic uniformity, fiscal discipline and prudent economic management in the sub-region is not always evident. Twelve years after the original decision to adopt a common currency was embraced, the region continues to wait.

The Acting Director General (ADG) of WAMI, Mr J. H. Tei Kitcher recently said the problem is member countries’ inability to maintain their individual macroeconomic credentials. While commending several member countries for inching towards economic stability over the past few years, Mr Kitcher said the problem now has to do with the ability of member countries to sustain the macroeconomic stability so far achieved.

With a new adoption date pegged at 2015, the ADG of WAMI believes the magic wand lies in fiscal discipline. This, he said, was necessary to help member countries meet the convergence criteria while buffering them against the fallouts that could come from belonging to a monetary zone.

Who will lead WAMZ to the promised land?

The West African Central Bank (WACB), the central bank for the WAMZ, headquartered in Accra, Ghana, is the authorised bank to print and issue the eco should it come into effect in three years’ time.

But even before the bank goes live with its primary activities for the WAMZ, eyebrows are being raised with regards to its objectivity and ability to integrate the respective countries’ currencies into one. To date, it is somewhat unclear what ratios of the various currencies will be used in the calculations of the eco’s value. This is to say, how much of one Ghana cedi will amount to an eco?

Another issue rearing its head is that of the influence of the continent’s most populous nation, Nigeria on the zone should the common currency take effect. The country’s population currently accounts for about 80 per cent of the estimated 200 million people residing in within the WAMZ area. Nigeria also accounts for about 85 per cent of the region’s US$220 billion GDP.

Despite Nigeria’s demographic and economic intimidation on the zone, the country has thus far been unable to drag its neighbours into compliance with the harmonisation criteria. The country itself is not doing particularly well socially (fuel riots) and after meeting three out of the four criteria in 2009, Nigeria slipped back to into the economic doldrums and is now compliant with only two. Unlike the euro zone where countries like Germany served as mentors to minor ones, like Portugal, the shaky nature of almost all economies in the WAMZ does not bode well.

None of the six member countries seems keen to emerge as the somewhat self-sacrificing lead player within the WAMZ, imposing some austerity measures to ensure the realisation of the eco. Most governments are carefully avoiding trampling on the home economy so as to not give fodder to opposition parties during election time. This unfortunately pulls the implementation process backward.

A blessing in disguise

Most analysts are upbeat about the prospects of a common monetary zone and currency for Anglophone West Africa, a region that has one of the most varied economic policies and fiscal records in the world.

An integrated currency, some say, will facilitate unprecedented large-scale international investment in the region. In addition to reducing transaction costs within the region, successful implementation of the eco is expected to promote West African intra-regional trade and businesses, thereby raising the region’s meagre foreign direct trade revenues to enviable levels. The continent’s disintegrated trade arrangements have long accounted for scant trade income.

“A unified currency will boost trade between West African nations, as well as attract large foreign direct investment. I foresee strengthened economic stability, considering the fact that there will be convertibility as well as improved transparency in pricing,” say analysts.

For the sub-region and the continent at large to reap from these projections, the respective countries have to pass the first vote of confidence – convergence in accordance with WAMI’s demands.

Anything short of convergence, according to the ADG of WAMI will only get WAMZ to replicate current developments in the euro zone. With countries within the euro zone currently sitting on a ticking time bomb generated by the now debt-ridden Portugal, Italy, Greece, and Spain (affectionately referred to as the PIGS), the WAMI ADG insists that a rush to implement the eco could be detrimental to the region soon afterwards.

Current developments in the euro zone, Mr Kitcher said, highlight the need for aspiring monetary unions, such as WAMZ, “to undertake more technical preparations prior to the implementation date.”

The WAMI ADG said although the sophisticated nature of euro zone economies and their robust financial standing were expected to help shield the region from a crisis of this nature, current developments in Europe is giving economists within Africa an opportunity to rethink earlier perceptions about monetary issues particularly as they pertain to leverage and debt sustainability and reporting.

“Members of the euro zone are the countries with advanced economies and they have renowned economic institutions that could help strengthen their finances. One would have, therefore, expected them to be fiscally disciplined so as to avoid their current economic problems. But look at what is happening over there now,” he added.

However pinching the current sovereign debt crisis in the European Union (EU) may be to its members, aspiring monetary zones worldwide are learning big lessons. The WAMI, WAMZ and its six member countries are part of those being schooled by Europe’s current mess. “We are really learning from the euro crisis and one lesson that stands tall is the need for individual countries aspiring to join monetary unions to be fiscally disciplined, transparent with their economic data with their peers and committed to converging to the agreed criteria”, Mr Kitcher explained.

He continued, “One of the reasons that accounts for the current euro zone crisis is the fact that some countries were not completely honest and realistic as to their macroeconomic outlook and really did not also converge at the time of entry and these realities are now returning to bite the region,” says the acting ADG of WAMI.

Given the now public loopholes being revealed in the EU, Mr Kitcher is not in a haste to recommend for the eco for adoption. WAMI’s focus, he said, is rather on helping member countries to build sustainable, sound and vibrant economies that can withstand the blows of a euro zone-like disaster in WAMZ after implementation in 2015.

Whatever the case, it is common sense that the implementation of the currency and monetary zone for the region has dragged on for a while having failed to materialise after ten years of back and forth. The current revised date of 2015 could also turn into an unrealistic fiasco. It would not come as a surprise as the bickering over frivolities in WAMZ begins to intensify. But as far as debt contagion and its crippling effects on economies within a common monetary zone are concerned, the eco and its long trumpeted laurels are better kept in waiting.