Why the quest for a single currency for West Africa won’t materialise soon

Interesting piece by Prof. Tahiru Azaaviele Liedong of University of Bath. One would imagine most monetary union projects would be stalled seeing the case of Europe, but not really.

Apparently there are 15 West African countries which want to form a monetary union. Of these 15, 8 are French colonies, 5 English and two are Portuguese. Of the 8 French colonies, 7 are already in a monetary union along with one of the Portuguese speaking nations (Guinea-Bissau). Their common currency is CFA Franc.

Country Currency Official Language
Common Currency: CFA Franc 
1  Benin CFA franc French
2  Burkina Faso CFA franc French
3  Guinea-Bissau CFA franc Portuguese
4  Ivory Coast CFA franc French
5  Mali CFA franc French
6  Niger CFA franc French
7  Senegal CFA franc French
8  Togo CFA franc French
Anglophone
1  Ghana cedi English
2  Gambia dalasi English
3  Liberia dollar English
4  Sierra Leone leone English
5  Nigeria naira English
Others
1  Cape Verde escudo Portuguese
2  Guinea franc French

Now the other members most of them English speaking want to first form their own monetary union and then together form one union of 15 member countries. Interestingly, the Francophones started their union in 1994 to counter the dominance of large Anglophone countries like Ghana and Nigeria. It is quite similar to Europe’s monetary union project which was started to counter hegemony of US Dollar.

However, the Anglophone countries are finding going tough due to stringent joining criteria. This is actually surprising as we usually read Anglo Saxon countries and their colonies are better at economics/finance due to better English systems, common law and so on. But in case of West Africa this has not been the case.

Prof Liedong says:

To implement the single currency, the regional economic body set some conditions.

First, it requires all countries to achieve a single digit inflation of 5% or less, which is a difficult task. In Ghana, data shows that the average yearly inflation between 2000 and 2016 was 16.92%, which is far from a single digit. Nigeria, the largest economy in the region, recorded an average inflation of 11.92% between 2003 and 2016, a rate which far exceeds 5%.

Moreover, West African countries are net importers, even of food. Nigeria, for instance, spends USD$6.5 billion annually on food imports. This sad situation compounds the inflation problem, which is made even worse by the region’s unfavourable exchange rates.

Second, the regional economic body requires all member countries to achieve budget deficit to GDP ratios of 4% or lower before the single currency is launched. In other words, budget shortfalls should be 4% or less of the total market value of all goods and services produced in the respective member countries. It will take a miracle for this to happen by 2020, three years from now.

How can Ghana, whose total debt to GDP stood at 73.3% in 2016, be expected to attain this ratio? How about Gambia whose public debt stood at 108% of GDP in 2015? Even Nigeria, which has one of the lowest debt to GDP ratio in West Africa, is far from the milestone. Essentially, budget deficits have soared and governments will continue to borrow to finance public expenditure.

If the convergence criteria are not revised to reflect the real macroeconomic situation in the sub-region, the single currency dream will remain work-in-progress for the unforeseeable future. This is because economic growth in the sub-region is slow, poverty is rife and the fundamentals for integration are far from realisation.

He also asks whether a single currency/single central bank is a good idea given the large differences and surrender of monetary policy.

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