The introduction of the Eco, the regional currency planned for West Africa, would have protected the sub-region from the current macroeconomic instability, including a possible recession, which threatens the 15 Member States opposite ? The answer is up to guesswork now, since the currency has yet to be introduced, some two decades since it was first approved by the bloc’s leaders.
The potential benefits of such a monetary union have been well documented by economists. In the case of the Economic Community of West African States (ECOWAS), the adoption of the Eco was to facilitate trade between members, i.e. improve cross-border trade in the region. known for its stringent border controls along Nigeria. Route of the Ivory Coast. It is also planned to reduce or eliminate currency conversion costs; making the region more attractive to investors through the creation of a larger single market, among others.
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Despite the congruence of markets in the region, trade between neighbors is perhaps as difficult, if not more difficult, than trade with Europe or Asia.
Sometimes it is cheaper to import from Asia than to buy from neighboring countries, and the common international passport is only worth the visa on arrival for tourists in the countries, without any privileges or brotherhood trust.
The euro, currently used by 19 European states, has played roles similar to those the Eco was supposed to play in West Africa, since its launch on January 1, 1999, says Abiola Rasaq, former chief economist of the United Bank for Africa Plc.
“The euro has provided a rallying point for the eurozone, broken down a major barrier to cross-border trade, and created strong domestic demand that has spurred the expansion of manufacturing and industrial sectors. It was a powerful lever for global competitiveness and indeed offered more choice and opportunities for European consumers,” he said.
According to him, “while the euro is currently used by nineteen of the 27 members, it has clearly served as a pivot on which many common economic and political ties have been built in the euro zone. Indeed, countries like Greece, Portugal and Italy would have had a harder time surviving the past decade without the euro’s silver lining. This monetary unification has been a rallying point through which the individual weaknesses of the member countries are managed and the respective strengths are exploited.
As noted by Dr Lizzie Kings-Wali, Founder and CEO of Blackstone Capital Limited, “There are benefits to adopting a single currency in West Africa, but there needs to be trust that is both explicit and implicit between the member countries, in particular with regard to the coordination of budgetary policies and monetary policies concerning matters which would remain under the sovereignty of the member countries”.
She added, however, that “as exciting as a uniform currency may seem, it is necessary to remove barriers to the mobility of people, goods and services for a single currency to have its full effect, otherwise the benefits would be lost. in the fog”.
These and other gains are generally possible. A monetary union within the framework of economic integration generally follows earlier stages that involve the harmonization of macroeconomic policies and the elimination of distortions among members. These generally include tariff harmonisation, free movement of people within the region
If the prospects for realizing the common currency were bright 10 years ago, today they have faded. The adoption of the currency by ECOWAS was to be based on ten principles, called convergence criteria. These policy goals needed to be achieved to bring economies to the same level on fundamental macroeconomic issues. Once in place, they are supposed to facilitate the application of common monetary and fiscal policies throughout the collaborating state.
Of the ten criteria, four were said to be key or primary. These are measures intended to enable cooperating member countries to strengthen their macroeconomic balance before merging into such a union. Such a position should help
This is the achievement of a single-digit inflation rate at the end of each year; a budget deficit not exceeding 4% of GDP; deficit financing by the central bank not exceeding 10% of the previous year’s tax revenue and an import cover of gross foreign exchange reserves of at least three months.
Examination of these criteria forcefully reveals that the problems associated with them are at the heart of the malaise that afflicts the sub-region, indeed most of the African continent. Take inflation, for example. Inflation in two of the largest countries in the group has peaked: 33.9% in Ghana and 20.5% in Nigeria. However, it is lower in most of the others: 6.2% in Côte d’Ivoire; 7.5% in Mali; 6.48% in Liberia and -0.3% in Benin Republic, an increase from the -1% recorded in July this year. The inflation rate in Côte d’Ivoire is at its highest since 2011; the rate was 5.4% in July.
While the region appears to be doing quite well on inflation (as many smaller members are in the single digits, the debt-to-GDP ratio benchmark may be different, as the macroeconomic balance has deteriorated. In Ghana, the debt-to-GDP ratio reached 78%, while the balance of payments deficit jumped to around $2.5 billion in June.
Nigeria is no better off. While its debt to GDP ratio is currently 23%, the deficit is unsustainable, driven by heavy gasoline subsidies that the government is struggling to manage. Government spending is increasing while revenue, which traditionally depends on crude oil revenue, is shrinking.
Talk about Naira, not Eco – Prof Adi
Nigeria no longer needs currency at the moment, says Bongo Adi, a professor and development macroeconomist at the Lagos Business School.
“Anyone who thinks of Eco doesn’t understand the monetary system. Money is the trust of a group of people and its power comes from the number of people using it,” he told the Daily Trust in an interview.
“That’s why America has made sure that everyone uses the dollar. Another currency that will be global very soon is the yuan (the Chinese currency) and the Indian rupee.
He blames Eco’s inability to take off on his inability to meet the network’s money criteria. “The power of money comes from those who use it. It’s a network issue.
He compares it to the cell phone that everyone carries. “It’s no use if there’s no one else who can call you. The value of your phone depends on the number of people who can reach you. If only the same people can call you on your phone, no one else can call you, your phone is useless.
The power of your phone is that anyone can reach you and you can reach anyone. This is the network effect. The money is on the network. Which West African population uses Eco? And they too (except the French-speaking countries) have their small, small currencies (Cedi in Ghana, Leon in Sierra Leone, etc.)
“So you now have a currency that has an inherent network (which is the naira), and you’re not talking about it but you’re talking about Eco which has no network. So how can it take off?
“Which population in West Africa uses Eco? And they also have their small, small currencies (Cedi in Ghana, Leon in Sierra Leone, Liberian Dollar, etc.).
What Nigeria needs to do, he said, is enforce the use of the Naira in the sub-region. “What a Nigerian president or a CBN governor should do is look for ways to ensure that the transaction in West Africa goes through the naira. Not eco. You don’t need to do Eco. Eco what? He asked.
Adi said Eco could only work if Nigeria took the lead because most things in West Africa go through Nigeria, including import shipping.
Analyzing the Eco currency economy from a network perspective, the don argued that “you cannot have naira, which is the dominant currency in the region used by over 80% of the population and for more 80% of transactions in the region and then you have another currency, Eco. So now you have competing currencies”.
The population of the 15 ECOWAS member countries has been estimated in different ways by different sources, but WorldData.Info puts it at 407.68 million people. Nigeria’s population is also estimated at around 214 million, which means that this country accounts for at least half of the population of the sub-region.
The late implementation of the single currency policy in the sub-region has also been blamed on regional policy. Adopting it will give credit to French colonization, which is still very active in French-speaking countries, says Adi. Francophone countries still owe their political and economic allegiance to their former colonial master, France, he pointed out.