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WEST AFRICA - Eco by 2020 not feasible.

Summary: Although the 15-member ECOWAS grouping has now agreed on what to officially call the proposed single currency for the sub-region, it seems that the 2020 launch date may be too optimistic. Report by Rafiq Raji.

In June this year, finance ministers of the 15-member Economic Community of West African States (ECOWAS) met in Abidjan to discuss the region's single currency programme.

Central bank governors of member states were also in attendance. They agreed to call the single currency the eco. Although there were divisions on the symbol for the currency, there was eventually an agreement on that as well. The eco was formally adopted at the end of the ECOWAS summit in Abuja in July.

But given the history of postponements over the single currency since 2000 when the idea was first mooted, it seems unlikely that the 2020 date will be met.

Currently, ECOWAS is composed of two distinct groups. Eight francophone countries -- Benin, Burkina Faso, Guinea-Bissau, Cote d'Ivoire, Mali, Niger, Senegal and Togo -- formed a customs and currency union called the West African Economic and Monetary Union (WAEMU). These countries have used the CFA franc since 1945.

The second group is composed largely of Anglophone countries: The Gambia, Ghana, Guinea, Nigeria, Sierra Leone, Liberia and Cape Verde. Each country has its own distinct currency.

In 2000, the second group decided to establish a monetary union called the West African Monetary Zone (WAMZ) with a single currency, and gradually merge this with the CFA franc to create a much larger customs union with a single currency.

In 2001, the West African Monetary Institute (WAMI) was set up, with its headquarters in Accra, Ghana to prepare for the future West African Central Bank

Poor convergence compliance thus far

Originally slated for January 2003, the single currency launch has been postponed several times since -- the main sticking point is over the four primary convergence criteria.

These are: a single-digit inflation rate of 5% or less; gross external reserves that cover six months of imports; central bank financing of a budget deficit of no more than 10% of the previous year's tax revenue; and a maximum budget deficit of 4%.

Since 2015, West African inflation has been in the double-digits. According to AfDB data, average inflation in the region rose to 13.3% in 2017 from 8.2% in 2014. The AfDB projects inflation will moderate to 11% in 2019. It also projects the budget deficit for the region to be above 5% in 2019.

Obviously, there is still quite a long way to go before countries in the region meet the single currency's primary convergence criteria.

So, in light of the poor convergence compliance record of member countries and past postponements of the single currency, is 2020 a feasible date?

Malte Liewerscheidt, vice president at Teneo, a consultancy in London, says "further delays to the eco are virtually guaranteed". That is, unless "participating countries take their own deficit and convergence criteria seriously", he adds.

Judd Devermont, director of the Africa programme at the Centre for Strategic and International Studies (CSIS) in Washington DC and a former US national intelligence officer for Africa, has his doubts as well.

"I am sceptical of a single currency launch in 2020 in part because it will require coordination between 15 West African governments as well as the European Union, especially France." He argues it is "a tall order given capacity issues and competing priorities on both sides of the Mediterranean."

In any case, Teneo's Liewerscheidt considers it highly doubtful "a common currency at this stage would actually benefit the sub-region". He highlights the vast differences in size, economic and trade profiles and diverging monetary policy needs of the region's member states.

What is the way forward then? CSIS's Devermont recommends "that stakeholders avoid a hasty move on a single currency. Instead, member-states should conduct additional consultations, deeper analysis, and sustained outreach to ensure the region's economies, key institutions, and currency markets understand and support this initiative." n

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Publication:African Banker
Date:Aug 5, 2019
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