The Dilemma of ECOWAS Currency Convergence

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Zainab-Ahmed
Minister of Finance, Mrs. Zainab Ahmed

James Emejo writes that the federal government must ensure its final resolve on the adoption of the proposed ECOWAS single currency programme, in view of recent developments, reflects the overall interest of the Nigerian economy

In what could best be described as an upset, and to the consternation of other member countries in the West African region, particularly the English-speaking countries, the Ivorian President Alas-sane Ouattara, alongside the French President, Mr. Emmanuel Macron, on December 22, announced the decision to abandon the CFA franc, which is the currency used in eight countries in francophone West Africa including

Benin, Burkina Faso, Cote d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo, and adopt a new currency known as Eco.

The deal with France and the Monetary Union of West Africa (UEMOA), which is currently led by Ouattara, is expected to advance the Eco, which is the name of the new currency to replace the CFA as well as create the possibility of the entire 15-member ECOWAS countries to adopt.

If anything, the announcement by the Ivorian president jolted the regional countries, particularly Nigeria, which had been an arrowhead in ECOWAS’ quest for a monetary convergence.

Furthermore, the declaration by Ouattara was particularly worrisome, given that the concept of the regional monetary union was a collective desire and efforts of the entire West African region, led by their respective heads of government- and most of whom were not privy to the intents and consequent declaration by parties politically aligned to France.

The federal government, which was still in shock at the initial pronouncement by its regional counterparts had managed to put out a reaction, describing the French move as hasty adoption of the ‘Eco’.

The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had in a brief statement said: “Nigeria is studying the situation and would respond in due course.”

The notion of a hasty adoption of the Eco, stemmed from the realisation that countries were yet to satisfy the key convergence criteria set out for members to aid a monetary union by 2020.

Essentially, the concept of a monetary union, conceived in 2000, was aimed to facilitate cross border trade and economic development of the member states.

Established in 1994, the West African Economic and Monetary Union (also known by its French-language acronym UEMOA) is an organisation comprising the eight, mainly French-speaking states within the ECOWAS, which share a customs union and currency union.

It was created to counterbalance the dominance of English-speaking economies in the bloc including Nigeria and Ghana.

On the other hand, the West African Monetary Zone (WAMZ), established in 2000, comprises six mainly English-speaking countries within ECOWAS which planned to work towards adopting their own common currency, the Eco.

But the idea of a currency convergence in the region was mulled at a meeting in Conakry in 1983 with a focus on 2020 to achieve the objective.

However, the repeated failure by member states to meet all key convergence criteria had been a major setback.

While some countries had tried to meet reserves requirements, they’ve failed to contain inflation and other key macro-Economic demands.

However, all the 15- member ECOWAS countries had subsequently agreed to work collectively towards a single currency regime for the region with several implementation deadlines set and missed since 2000 when the programme for currency convergence commenced.

In achieving a smooth transition, each country is expected satisfy key macroeconomic criteria including maintaining a budget deficit of not more than three per cent; average annual inflation of less than 10 per cent with a long term goal of not more than five per cent as well as a gross reserve that supports at least three months of imports- as a primary criteria.

Also, the respective economies are expected to further maintain a public debt/gross domestic product (GDP) of not more than 70 per cent; central bank financing of the budget deficit should not be more than 10 per cent of previous year’s tax revenue as well as nominal exchange rate variation of plus or minus 10 per cent.

However, the persistent failure of member countries to meet the set criteria for convergence had been largely responsible for the delayed implementation of the single currency, whose deadline had been moved forward several times- the most recent timelines being 2020.

Earlier last month, during the opening of a meeting of the ECOWAS ministerial committee of ministers of finance and governors of central banks on the single currency initiative, Ahmed had indicated that the 2020 implementation deadline set for the adoption of single currency by ECOWAS member states had been constrained by the continuing macroeconomic vulnerabilities in the respective economies.

According to her, till date, only Togo out of the 15 ECOWAS member countries had been able to fulfil all four convergence criteria within the last two years which was required for a smooth transition by the target date.

She added that the development made it difficult to operationalise the proposed currency union, which is already christened as ‘Eco’.

The minister had also admitted that macroeconomic stability remains uncertain in the region, stressing that there had been a failure by most ECOWAS countries to implement critical roadmap activities to achieving the target.

Nevertheless, she said some significant progress had been recorded by member states in the areas of inflation targeting, flexible exchange rate, the establishment of the ECOWAS central bank as well as the adopted Eco as the single currency.

She encouraged the ECOWAS countries to be steadfast towards meeting all convergence criteria for a smooth monetary union.

But that was not the first time the ECOWAS had expressed frustration at the slow pace of achieving the set target.

In August 2018, the West African Monetary Institute (WAMI) had raised concerns that barely 18 months to the projected 2020 implementation deadline, no member country of the West African Monetary Zone (WAMZ), including Nigeria, had met all convergence criteria towards the implementation of a single currency for the sub-region.

Though the average performance of the zone indicated improvement in macro-economic convergence index as at December 2017, none of the member countries satisfied all four criteria including inflation and fiscal deficit criteria and gross external reserves requirement as well as central bank financing criteria.

Also, in May 2008, members also expressed disappointment over their failure to meet the macro-economic convergence criteria for implementation of the single currency by December 2009.

At that time, only The Gambia was able to satisfy all criteria for the three years running (2006 to 2008).

It is however, instructive to note that Ouattara’s pronouncement came at a period when the ECOWAS heads of government were meeting to review the recommendations of the technical committee as well as take a position on whether or not to go on with the implementation of the single currency this year.

As a result of the development, several analysts have continued to counsel the federal government on the best possible way to approach the situation- particularly whether to follow suit in adopting the Eco as pegged to the Euro or stick to the local currency- the naira.

A member of President Muhammadu Buhari’s Economic Advisory Council (EAC), Mr. Bismarck Rewane, said the country should concentrate on its internal economic challenges for now, adding that it doesn’t currently have the leverage to join in the Eco adoption presently.

He further cautioned the federal government against allowing itself to be stampeded into making precipitated decisions on aligning to the proposed single currency for West African countries.

Speaking on ‘The Morning Show’ on Arise Television, a broadcast arm of THISDAY Newspapers Group, said the country was not yet ready for currency convertibility.

Also speaking with THISDAY on the issue, renewed Economist, Prof. Ken Ife, said Nigeria had a lot to gain in the proposed monetary union, nevertheless, adding that it would help accelerate the growth of the Economy as well as curb smuggling challenges at the borders.

He said: “Eco Single currency has been in the works for over two decades and keep being pushed back as it was difficult for member states to meet the 10 macroeconomic convergence criteria, now reduced the four core ones which only Togo has met.

“France domination with eight francophone member states locked into a functional CFA, but one which economic value cannot be determined because of the complex control of CFA and their reserves by France. If they have reversed the grip and given a go ahead, it is really a good news.

“But as Nigeria has by far the largest economy, market and foreign reserves, Nigeria central bank should act as the Central Bank for West Africa. If this happens, Central African States (CEMAC) CFA might quickly collapse into Eco by accession as will most other African countries by accession, making Nigeria CBN the Central Bank for Africa, although the name may change to something like ‘Afro’.”

According to him, this will catalyse an acceleration of the diversification and growth of the Nigeria Economy and infrastructure to support rapid sectoral growth. Nigeria must, like German Bundesbank, have robust and sustainably high reserves, low debt, low inflation and high growth, and of course employment to sustain that monetary economic leadership and some of our restrictive trade practices will have to be stepped down.

“Obviously, it is a long way away as we have to implement the AfCFTA and the Customs Union etc. From ECOWAS perspective, many of Nigeria food smuggling problems with border countries caused by currency differential, will disappear as will intensification of intra-regional trade through eliminating dollar and euro currency in the cross-border trade etc as the flow of capital helps to deepen regional economic integration.”

However, President of the National Association of Nigerian Traders (NANTS), Mr. Ken Ukaoha, hailed the federal government’s response to the Eco adoption by francophone West African countries, adding that Nigeria had often showed non-challant attitude to situations like this in the past.

In an interview with THISDAY, Ukaoha said the cost, including that monetary policy and economic adjustments of adopting the new currency must be fully understood and well counted “so we do not become Germany to shoulder any dwindling member state. France would of course have been laughing by the side.”

According to him, some questions are still awaiting clear answers, decisions and adoption concerning the currency convergence- and queried the seeming usurpation of powers by the Ivorian president.

Ukaoha said, “I attended the last ECOWAS monetary policy meeting held in Guinea Conakry during the second week of this December. These fundamentals were placed on the table and many of these by the Nigerian representatives, who were very sharp at that meeting.

“Matters arising as concerns now should include, why President Ouatarra is speedily making the announcement before the authority of ECOWAS Heads of State final decision, which usually comes with a legal framework?

“Is Ouatarra the current chair of ECOWAS? Why even the duo of President Ouatarra and Macron making the announcement? Where now are the decisions on the matters raised in Conakry? Indeed, there are more questions and concerns that may not be printed here on a social media.

“These are the reasons why I fell in love with Nigeria’s approach via the press release. Of course, Ghana as usual and as expected has concurred so that at the end, Nigeria would become the usual brunt bearer.”

He added: “Before I forget, this is exactly what happened when the ECOWAS CET was to be adopted, and followers of history would still remember that Nigeria was to be made the scape goat before the private sector raised the red flag resisting the adoption of UEMOA’s 4-digit CET. Our resistance resulted in a fifth band of 35 per cent. Let’s watch the drama as it unfolds.”

Also, in an interview with THISDAY, Executive Director, Africa Industrialisation Group, Mr. Carl Oshodi, stressed the need to attach great importance to trade liberalisation, adding that countries must be able to respect global trade commitments.

He said one of the imperatives of the Eco is to address issues such as borderlessness, especially the Nigerian border closures situation and the import of the causative factors which have continued to serve as barriers to the full implementation of the Eco in order to be able to address regional trade barriers within ECOWAS, “especially on providing resultant sanctions to address the flagrant abuse of trade treaties.”

Oshodi said: “The recent adoption of Eco since its proposal has led to so many considerations. For a fact, Nigeria and the controversies on the convergence criteria for the Eco to be implemented is a 10 convergence criteria, set out by the West African Monetary Institute (WAMI)…

“In June and December 2019, presidents of the 15-nation ECOWAS agreed, with major decision effected at the summit in Abuja in June this year where they adopted Eco as the name of the planned shared currency for the bloc, which will take off in 2020.

“The skepticism of the minister of finance should be not seen as a fundamental threat to the take-off of the implementation phase of the Eco, but as a solution to some of the statements in the address of the President of the ECOWAS Commission, Jean-Claude Kasi, who opined that member countries have made significant progress in several areas to achieve the monetary convergence, but that, which he argues requires efforts at strengthening constant reforms and currency review of ECOWAS member countries.

“This portend doubts on the possibility of the single currency regime to take proper effect until these conditions are met, and when the conduciveness for its operationalisation trajects without foreign hindrances, particularly with the news of change of name of the UEMOA Currency, the CFA (Communaute Financiere d’Afrique) to Eco, supposedly as the single currency of Economic Community of West African States (ECOWAS).”

However, commenting further on the development, President of CoralReef Consult, Mr. Ahmed Yusuf, said he believed there was no controversy in the issue as ECOWAS member countries had already agreed to adopt Eco.

He stressed that for any block to be economically competitive, it had become necessary to be more united, adding that currency represented the best way to unite.

He said: “Once you have a common currency, you have a common trade because you have to have a common trade policy for implementation of the currency. So there is no controversy as far as I am concerned.

He, however, pointed out that politics could take centrestage in the scenario, “because at the end of the day, no matter what they do, the total economy of all of them will not amount to that of Nigeria.

“The critical issue is, how can Nigeria take advantage of its position in this setting, period? The closure of the border is a first step.”

However, even far above the present challenges in meeting the macro-economic convergence criteria are other underlying issues which may further compound the single currency initiative.

It was reliably gathered that there are divisions among the member states over whose foreign reserves will eventually be used to defend or support the ‘Eco’ single currency.

While it remains obvious that other countries lacked the formidable reserves compared to Nigeria, all expectations remained focused on the latter, a position which the country is not comfortable with- particularly given the pressures it had had to cope with in recent times to defend the naira using its fragile reserves.

Also, the African continental free trade area agreement (AfCTA) remained a major issue among ECOWAS member countries, particularly the closure of land borders by Nigeria to curb smuggling by its neighbours.

Consequently, Ahmed had seized the opportunity of the meeting to reassure the ECOWAS member countries that the country remained committed to trade liberalisation.

Commenting with respect to the present closure of its land borders to tame dumping and smuggling, she said if left unchecked, the development tended to threaten the country’s ambition to diversify its economy.

She, however, assured that efforts were ongoing to resolve the border impasse following a recent tripartite meeting with stakeholders.

Analysts, however, believe that going ahead with the single currency initiative without resolving the underlying issues, especially the political dimension- could lead to a situation where members- Nigeria in particular could in future decide to opt out of the programme if it feels other states are not living up to their obligations in contributing to the preservation and defending the Eco- a development that could be likened to the now problematic quest by the United Kingdom to exit the European Union (Brexit) because it feels the country was being shortchanged by EU member countries.

Although, the recommendation of the technical committee is yet to be evaluated, there is the likelihood that the ECOWAS presidents will at their meeting resolve to review of the implementation timeline to a future date as the present state of preparedness is deficient.

But, beyond the present challenges in meeting the macro-economic convergence criteria are other underlying issues which may further compound the single currency initiative.

There had been divisions among the member states over whose foreign reserves will eventually be used to defend or support the ‘Eco’ single currency.

While it remains obvious that other countries lacked the formidable reserves compared to Nigeria, all expectations remained focused on the latter, a position which the country is not comfortable with- particularly given the pressures it had had to cope with in recent times to defend the naira using its fragile reserves.

Also, the African Continental Free Trade Agreement (AfCFTA) remained a major issue among ECOWAS member countries, particularly the closure of land borders by Nigeria to curb smuggling by its neighbours.

Consequently, Ahmed had reassured the ECOWAS member countries that the country remained committed to trade liberalisation adding that with respect to the present closure of its land borders to tame dumping and smuggling, the development tended to threaten the country’s ambition to diversify its Economy, if left unchecked- but assured that efforts were ongoing to resolve the border impasse following a recent tripartite meeting with stakeholders.

Analysts believe that going ahead with the single currency initiative without resolving the underlying issues, especially the political dimension- could lead to a situation where members- Nigeria in particular could in future decide to opt out of the programme if it feels other states are not living up to their obligations in contributing to the preservation and defending the Eco- a development that could be likened to the now problematic quest by the United Kingdom to exit the European Union (Brexit) because it feels the country was being shortchanged by EU member countries.

It is, however, noteworthy, to reiterate that the process which led to the emergence of the Eco was a collective effort of ECOWAS.

In November 7, 2018, the ECOWAS Commission had launched a competition to determine a suitable name and logo for the proposed single currency for the region, with $46,000 in prize money.

The quest was open to all citizens of ECOWAS member state regardless of their residence as well as legal persons established in an ECOWAS member state in line with its laws.

According to a circular from ECOWAS to this effect, three best proposals will each be selected for the name and logo. All entries/ proposals are to be submitted by November 20, 2018.

Accordingly, the commission had explained all proposals for currency name shall not be based on the name of a person, ethnic group or contain expressions directly linked with a religion, country or national institution among others.

On the other hand, the logo shall among other things symbolise unity and shared cultural and historical values of ECOWAS.

The first prize for all categories included $10,000 and $8,000 for the second prize as well as $5,000 for the third prize.

According to the commission, the general objective of the competition is to receive proposals on the name and visual design of the future ECOWAS currency.

However, Nigerians, as well as other ECOWAS member states await to see how the country eventually responds to the seeming ingenuity on the part of their French counterparts in the region in the eventual adoption of the much-desired single currency.