The ECO: a common currency phantasm or certainty?

The plan by the Economic Community of West Africa States (ECOWAS) to have a common monetary union with a single currency has been put forward several times, leaving business people, cross-border traders and financial analysts sometimes, wondering when the proverbial ‘old lady’ will finally shove off her ‘stick’. Meantime, it is also impeding the potential influx of massive foreign investment into the region.

The idea to have all the 15 countries in West Africa spend, save, invest and trade in a single common currency is as old as ECOWAS itself which was created in 1975. After several failed attempts and postponements in starting dates, ECOWAS has now given member states up to 2015 to put into effect the plan for a second monetary union and a single common currency in 2015 which will run alongside the existing common currency, the CFA franc, used by the French-speaking member states of the regional body. The ultimate goal is to eventually collapse into one the two monetary unions and create a single common currency for the entire sub-region. The President of the Ghana National Chamber of Commerce and Industry (GNCCI), Mr. Wilson Attah Krofa, believes the leadership of the ECOWAS Commission could speed up the implementation process of the second single currency.

In an interview with GB&F in Accra, Mr. Krofa said, “We need the Eco. We need it to facilitate the growth of business in the sub-region. At present, the cost of paying for transactions within the sub-region is too high. For example, if you have to move from Ghana to Nigeria to buy goods, you need to use dollars. And, as you know, we have no control over the rise or fall in the value of the dollar. This does not ensure price predictability. So, our leaders must work hard to give us a single currency without further delay.” Mr. Krofa, who also doubles as the president of the Federation of West African Chambers of Commerce and Industry (FWACCI), added: “I believe the single common currency is very important because if you want to have economic integration, trade is vital. And you can only trade effectively if you have a common currency. This is because, particularly, in West Africa, we have a lot of informal trade. Although officially we say the recorded trade among West Africans is 11%, informally, we know it is about 80%. You can go to Aflao and see the movements across the borders.” Financial analysts estimate that over US$10 billion worth of currency transactions take place annually in West Africa within the parallel money market, otherwise known as the ‘black market.’ These transactions, which constitute a huge loss in revenue to governments (because no taxes are paid on them), are usually carried out by unlicensed moneychangers who swarm around border towns and airports to do brisk business in competition with banks and Forex Bureaux.

The major underlying factor serving as an incentive for these illegal currency dealers can somewhat be linked to the avalanche of national currencies circulating within the sub-region. Indeed, it is very instructive to note that within the subregion of 15 countries, there are eight different national currencies, namely the CFA franc of the Union Economic Monetaire Ouest Africaine (UEMOA), the ESCUDO of Cape Verde, Dalasi of the Gambia, Cedi of Ghana, Guinea Franc, Liberian Dollar, Naira of Nigeria and the Leone of Sierra Leone.

According to Mr. Krofa, one of the major advantages in having a single currency is that, “It creates a situation where the countries become disciplined. This is because if a country is not managing her economy properly, there is moral suasion from the others to ensure that she performs.”

John Atta Mills, President of Ghana

“And that can assist countries in the sub-region to develop quickly and be able to compete with the rest of the world.”

It is on this basis that the business community within the sub-region has always been concerned about the delays in the programme of ECOWAS to introduce a common currency within the sub-region. The monetary union programme has been through several phases, starting from as early as 1975, when the West Africa Clearing House (WACH) was established as a mechanism for the payment of transactions between and among institutions within the member states.

In 1978, the West Africa Bankers’ Association was also established to complement the operations of WACH and, through that, commercial and development banks as well as other credit and financial institutions became part of the overall scheme of monetary integration in West Africa.

Nine years later, the leaders of the sub-region decided to give more vent to the process by launching the ECOWAS Monetary Cooperation Programme (EMCP) which, in turn, led to the creation of the West Africa Monetary Agency (WAMA) in 1995.

This was to ensure that all the various processes were systematically harnessed for the eventual creation of a single monetary zone in the sub-region. The collective objective of the EMCP and WAMA was to adopt common policy measures to achieve a harmonised monetary system and common management institutions among the member states by year 2000.

A three-fold approach was to be used: in the short term, the main objective was to strengthen the payment mechanism by introducing the ECOWAS Travellers’ Cheque and a Credit Guarantee Fund; in the medium term, the objective was to achieve limited currency convertibility; while in the long term, the objective was to achieve a single monetary zone in the sub-region characterised by the use of a common currency and the creation of a common central bank.

However, the monetary progamme to a very large extent has been unsuccessful. This is because the clearing mechanism accumulated several arrears while the Guarantee Fund could not take off on schedule. The ECOWAS Travellers’ Cheque that was later introduced in 1998, after several postponements, also came amid a myriad of challenges. Consequently, the long-term objective of the ECMP and WAMA to create a single monetary zone in West Africa was not met.

But still determined to pursue the programme, the 22nd Summit of Heads of State, held at Lome, in December 1999, recommended the adoption of a two-way fast track approach to the monetary integration process.

To this end, leaders of Nigeria and Ghana met in Accra that same month to fashion out the means of implementing the new approach. They decided to create the West Africa Monetary Zone (WAMZ) as a second monetary zone to the Union Economic Monétaire Ouest Africaine (UEMOA). Ghana and Nigeria were later joined by the other non-UEMOA countries, namely The Gambia, Guinea, Liberia and Sierra Leone, when they met in Accra in April 2000 to make a joint declaration for the establishment of the WAMZ.

That declaration became operational in December 2000 when the heads of state of the above-named countries met in Bamako and signed the ‘Articles of Agreement’. As part of the WAMZ initiative, the West Africa Monetary Institute (WAMI) was set up. It has so far come out with ‘ECO’ as the name for the second common currency for non-UEMOA members. To facilitate the attainment of the WAMZ objectives, member states
are expected to meet a set of primary and secondary macroeconomic convergence criteria before the monetary integration. This involves the commitment to adopt policies that would enable the country’s domestic economy to register price stability, including maintaining single digit inflation of around 5% of GDP and sustainable fiscal position, control of their budget deficit financing of around 10% of GDP and the maintenance
of efficient external reserves of about 6 months import cover; tax receipts of about 20% of GDP and the capacity to generate as much as about 20% of public investment from the domestic economy.

The initial date set for the introduction of the ‘ECO’ was January 2003. However, the implementation suffered a pitfall when by November 2002 it became apparent that the participating countries would not be able to achieve the convergence criteria.

The date was subsequently postponed to July 2005, as it was expected that that would give the countries adequate time to meet the criteria. But, again, this did not happen because the countries failed to meet the target.

It was then decided that, perhaps, the process should be postponed for a longer period to enable the countries make more preparations.

December 2009 was therefore settled upon with the hope that the participating countries will properly gird their loins for the new currency. But, as it turned out, the deadline did not become feasible, and now the new date is 2015.

For some analysts, it remains to be seen whether the proverbial ‘old lady’ would finally shove off her ‘stick’ in 2015 or there would be another postponement to perhaps, 2020.

Reacting to the challenges impeding the implementation of the single currency, Mr. Krofa said, “The difficulty in formalising the single currency is the convergence criteria which all the participating countries are expected to meet. Now, because most economies of the various countries are at different stages of development, it would be very difficult for all the fifteen ECOWAS countries to achieve convergence. Our recommendation is that we should start with those countries whose economies converge in the requirements that have been established as a stepping stone. Then, as we go along, when the others see the benefits, they would be motivated to work hard to join.” Explaining further, he added: “Let’s take the Euro, for example, only about five countries started using it before the rest joined in. Even as we speak, Great Britain is yet to join but the Euro is getting stronger and stronger. And so, with the situation in West Africa, if we say we want to wait till all the countries achieve convergence, it will never happen.”

Asked whether perhaps the leadership of ECOWAS should take a second look at the convergence criteria, Mr. Krofa said: “I believe so. I believe we need to look at the basis for establishing those criteria and see whether with the prevailing trend, there is a certain level that will make it compatible for the various countries to work together. Yes, we can look at that from historical evidence.”

“My advice is that the business community in West Africa must work together because, if we work together, we can bring pressure on governments to take measures that will work for the benefit of the private sector. You see, we need the governments, the political authority, to facilitate the integration process. But if we leave it to the politicians alone, it will not happen. And that is what we have done all these years. We have allowed the politicians to dictate the pace of the integration process but, because of their own parochial interests, they don’t want to do it. So, we should demonstrate to them that it is in the larger interest of the ECOWAS business community that we work together.

Once we do that and can demonstrate that a bigger market in ECOWAS will improve the economies of all the countries, the politicians will fall in line.”

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