ECOWAS countries pursuing single currency
The United Nations Economic Commission for Africa (ECA) have said that the economic performance of Nigeria was crucial in realising the dream for a single currency in the West African region.
Mr. Dimitri Sanga, Director of the Sub-Regional Office for West Africa of the United Nations Economic Commission for Africa (SRO/WA-ECA) said this in an interview with our correspondent.
He spoke on the sidelines of the meeting to establish a network of economic journalists for West Africa, in Dakar, Senegal.
Sanga said that the ECA as the “Think Tank” of Africa has been tasked to find out what it would take to accelerate the Economic Community of West African Countries (ECOWAS) single currency dream. He said the report will be released soon.
He noted that Nigeria constitutes more than 70 percent of the GDP of the West African region, with a population of 180 million, and would play a significant role in facilitating the process of achieving a single currency for the sub-region.
“Right now, we are having delays. Everyone is more or less saying that by 2020 we might not meet the goal of coming up with a common currency.
“Our study will advise Head of States of ECOWAS on how to go about this. our study is saying these bottlenecks can be addressed depending on the political willingness of the Heads of States.
“Some of the bottlenecks right now have to do with the fact that the CFA zones, are very comfortable with the singe currency trading among themselves, pegged to the Euro making it easy to trade with Europe.
“The second one is that why don’t we move directly to the currency of the most powerful country in the zone.
“When you look at the economy of Nigeria, Nigeria represents more than 75 per cent of the GDP of West Africa. That means that whatever the situation, the macroeconomic stability of Nigeria is key to the common currency goal of the ECOWAS,” he said.
Sanga said that to show how important Nigeria was to the economies in the region, when it went into recession two years earlier, the entire region was negatively impacted.
Sanga said that right now the region had agreed that some basic macroeconomic criteria would have to be met before the countries make the big leaps towards collapsing their economies.
He said however that not all the criteria have to be met at once before the single currency could come into fruition. He said that the most important thing was the political will, which seemed to be lacking.
“In our studies, we went as far as looking at what Europe went through and how they came out with the Euro together.
“Actually they did not start by respecting all convergence criteria before coming up with the common currency.
“Another example is the countries of the UEMOA They did not start by having a right convergence criteria in terms of inflation, in terms of fiscal deficit, interms of all other criteria before coming up.
“But rather, the fact that they decided to have a common currency have helped their economies to converge,” he said.
He said that waiting to have the same macroeconomic situation in the countries involved was unrealistic and would continue to elongate and push further away the dream for a single currency for the region.
Sanga also called for structural transformation of African economies to create more jobs, boost government revenue to provide education and other social amenities.
“If this is to be achieved, we need to move from relying on one or two major commodities in different countries. When you look at Nigeria, it is oil.
“When you look at Niger, it is Uranium and a little bit of oil, when you go to Cote Ivoire, it’s Cocoa. It’s always one or three commodities that determines the growth that we observe in these countries.
“First and foremost we need to diversify because we are endowed and we need to go into other areas.
“Nigeria can consider going more into agriculture, developing the supply and sale of energy to the rest of the region. Nigeria can also consider other sectors like ICT and so on.
“Also, even agriculture itself which has a lot of eminence in the GDP of African countries can be expanded. They should go into Argo-allied businesses. This is what will add value to the product that they can export,” he said.
Sanga also advised African countries to learn from Nigeria and rebase their GDPs so they could have a clearer picture of the sector’s contributing to the growth of their economies.
The Eco is the proposed name for the common currency that is planned to be introduced in the framework of the ECOWAS.
The goal is to merge the new currency with the West African CFA franc, used by the French-speaking members of ECOWAS since 1945 at a later date. This will create a common currency for much of West Africa.
For the Eco to be implemented, ten convergence criteria, set out by the West African Monetary Institute must be met.
The four primary criteria to be achieved by each member country are a single-digit inflation rate at the end of each year, a fiscal deficit of no more than 4 per cent of the GDP.
Also a central bank deficit-financing of no more than 10 per cent of the previous year’s tax revenues and a gross external reserves that can give import cover for a minimum of three months was proposed.
There are also six secondary criteria which had to be achieved by each member country.
They are the prohibition of new domestic default payments and liquidation of existing ones, tax revenue should be equal to or greater than 20 per cent of the GDP.
Also, wage bill to tax revenue should be equal to or less than 35 per cent, public investment to tax revenue equal to or greater than 20 per cent, a stable real exchange rate and a positive real interest rate.