Now, the story is that the single currency has been scheduled for 2020
. But there is skepticism about the prospects of this coming to pass, especially at a time when economic blocks like the European Union are struggling
The decision to create a single monetary zone
for West Africa was reached by the heads of state of 15 member countries
at a summit of the Economic Community of West African States
(ECOWAS), the region's economic commission, in Lome, Togo in 1999.
At the time, a currency union of francophone West African states
already existed to facilitate economic integration among countries which use the CFA Franc (courtesy of the Communauté Financière Africaine, or the African Financial Community
) as their currency.
To speed up the macroeconomic convergence necessary for a single currency across the entire sub-region, six anglophone heads of state met in Accra, Ghana in 2000 and agreed to create a second monetary zone for the anglophone countries
, with the ultimate aim of merging with the francophone countries. The aim was to create a single and harmonized monetary union
for all of West Africa by 2004.
The implementation of that common currency for West Africa's anglophone countries was postponed four times
before finally being jettisoned, dimming the hopes of a single currency for the sub-region.
The convergence criteria
the ECOWAS set for its member countries seem to be the bane of the single currency project. While the criteria are essential, they are also very high bars to scale for the countries concerned.
The hurdles to overcome
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 unfavorable 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 realization.
Is a single currency even necessary?
A single currency could help address West Africa's monetary problems,