ECOWAS Single Currency: How Does Nigeria Position Herself?
For more than thirty years, the 15-nation Economic Community of West African States (ECOWAS) had taken several steps towards introducing a common or single currency to promote regional trade and investment. The steps taken include given it a name, the Eco, setting up a body, the West African Monetary Institute, to midwife the currency, and established a time plan for its adoption.
Unfortunately, there have been too many stumbling blocks in the way. ECOWAS has laid out the six convergence criteria to be fulfilled by member countries to participate in its common or single currency project. Those criteria include a budget deficit below 3% of GDP; public debt of no more than 70% of GDP; inflation of 5% or less; and a stable exchange rate.
Moreover, gross foreign-currency reserves must be large enough to provide at least 3 months of imports cover, and the central-bank financing deficit must not exceed 10% of the previous year’s tax revenue. However, only Togo is said to have been able to fulfill these criteria in recent years.
A monetary union with a single currency for the 15 member states would mean that governments would transfer national political authority to ECOWAS institutions. Are member states willing to subordinate
national interests to regional interests? Will Nigeria ever give up its national currency, the naira? This edition of ENGAGE NIGERIA weekly publication critically examines the position of Nigeria in the proposed ECOWAS single currency.
According to the ECOWAS latest time plan, the Eco was supposed to be introduced in January 2020. On December 21, 2019, ECOWAS held a meeting in Abuja for final adoption of the Eco. Surprisingly, the eight West African countries using the CFA Franc (Burkina Faso, Togo, Mali, Guinea Bissau, Niger, Senegal, and Cote d’Ivoire) on the same date announced that they would rename their common currency, CFA Franc, to Eco from 2020. This decision was jointly announced by Cote d’Ivoire’s President Alassane Ouattara at a joint press conference with French President Emmanuel Macron.
The move made by the French government is to break up the 30-years struggle by ECOWAS to establish a regional currency to promote trade and development. France will take over the responsibility of establishing and even printing the new currency. France is also keeping the new currency attached to the Euro and therefore aligning it with its colonial interest, as it has always done with the CFA. This means that the other seven West African countries can only join on conditions established by France.
However, ECOWAS member states are struggling to meet the criteria they set-out for establishing the single currency. For instance, only five countries – Senegal, Cape Verde, Guinea, Togo and Cote d’Ivoire meet the requirement on inflation and budget deficits.
This disappointing reality led Mahamadou Issoufou, ECOWAS chairman and Niger’s president, to confirm that while “countries are ready will launch the single currency in 2020, countries that are not ready will join the program as they comply with all six convergence criteria”.
Nigeria’s Dilemma with ECOWAS Single Currency
There seems to be a reluctance to some extent on the side of the present federal government to go into such an unfamiliar pathway. President Muhammadu Buhari recently stated that “as Africa’s largest economy and most populous country, we cannot afford to rush into such agreements without full and proper consultation with all stakeholders”. Complicating matters further is the extent to which outside forces, especially France will shape the currency union’s trajectory. ECOWAS includes eight Francophone countries – Benin, Mali, Burkina Faso, Senegal, Togo, Guinea-Bissau, Niger, and Cote d’Ivoire. The monetary policies of these countries are set by the European Central Bank and executed by the Francophone West African Bank, in Dakar, Senegal.
Some critics have argued that one of the reasons why France kidnapped West Africa’s Eco currency is to ensure that Nigeria is permanently kept out of the currency. Historically, France has always defined itself as the main power block in Africa and so has always seen Nigeria’s self-definition as African power as a threat to its interests. Meanwhile, the French government is trying to woo Ghana to join the Eco, to completely isolate Nigeria.
The fact that Nigeria has closed its borders with its three Francophone neighbours also created conditions to push the Francophone countries to join this plot against Nigeria. Another reason is related to recent developments in the war on terrorism in the Sahel. Over the past years, France has become very unpopular in the Sahel because of the widespread belief that it was pretending to fight jihadists in public while supporting them in secret. Therefore, France is using the Eco currency launch as a public relation trick to rebuilding its battered image.
Conclusion and Recommendations
The eurozone experience showed how unruly currency unions can, and how important it is to continue experimenting and adapting. A currency union comprising the 15 members of the Economic Community of West African States will be no different – but that doesn’t mean it can’t work. Creating a successful one will require the ECOWAS countries to overcome serious challenges.
The first is a large and integrated labour market that allows workers to move easily throughout the currency union to fill employment gaps. Secondly, price and wage flexibility, together with capital mobility, are necessary to eliminate regional trade imbalances.
Thirdly, there must be a centralized mechanism for fiscal transfers to countries that suffer as a result of labour and capital mobility. Finally, participating countries should have similar business cycles, to avoid a shock in any one area
Credits: Engage Nigeria