Thursday, September 11, 2014

At Africa in Focus' First-ever Public Forum, Former ECOWAS Official Frank Ofei Speaks about Ecowas Common Currency

At Africa in Focus' First-ever Public Forum, Former ECOWAS Official Frank Ofei Speaks about ECOWAS Common Currency

Published on Thursday, 11 September 2014 06:10

By Isaac AIDOO

The effort to reach a common currency for West African states will remain elusive if governments continue to bask in fiscal indiscipline and fail to adhere to the dictates of any roadmap agreed upon.

With the structural weakening of the European monetary union at the root of Europe’s economic depression, the viability or otherwise of a single monetary union in West Africa has returned to the front burner.

Experts on monetary integration say the achievement of the eco can only be feasible if member countries are disciplined enough to pursue measures that fall in tandem with the region’s criteria for convergence.

Mr Frank Ofei,  a former  ECOWAS official who was instrumental in the revision of the ECOWAS Treaty in 1975 stresses on fiscal and monetary discipline by leaders of the member states if monetary union is to see the light of day.

At a two-day public forum on Regional Development in West Africa organised in Accra last week, Mr Ofei told participants that leaders of ECOWAS were failing to see and exploit the numerous opportunities in the West African market.

According to Mr Ofei, “achieving a single currency is feasible if we have the discipline but we don’t have the discipline. With the slippages we are experiencing in Ghana , we need to be asking ourselves what is happening to us and how do we surmount the challenges ; It’s not just a matter of bemoaning the fact that inflation is rising; we should ask ourselves what causes the inflation; what can we do about productivity to stem the rising inflation.”

On the score of the member countries inability to meet all the convergence criteria, Heads of States of West Africa Monetary Zone have recently set 2020 as the new deadline to attain one currency.

Mr Ofei pointed out that “it is not just about going to take a decision that we are setting 2020 as a new target  when you get back you don’t take the necessary steps to achieve that. If there is a roadmap that has come along with it, you must stick to it and make sure your policies are in line with that.”

He wonders whether there will ever be a time that governments will formulate policies that have a bearing on some of the commitments made at the ECOWAS forum.

“Every country is supposed to have a multi- year convergence programme so when the shift in deadline was made to from 2005 to 2009 each of the WAMZ countries was supposed to have drawn up a convergence programme covering that period to achieve the set target,” he submits.

Mr  Ofei  adds “You take where you are, where you are supposed to be, plot your path and policies that go with it to achieve that but none of the members has done that  so if you haven’t done it let alone implement it then the deadline will keep shifting.”

Since 2000, six ECOWAS nations have been planning to introduce a common currency, known as the eco, in a new monetary union, the West African Monetary Zone (WAMZ). The long-term strategy is for the CFA to eventually merge with the eco and transform into the region’s only currency.

The body set up to make the technical preparations for the transition, known as the West African Monetary Institute (WAMI), has postponed this implementation several times.

WAMI has been unable to carry out because most WAMZ members have failed to achieve the prescribed economic indicators needed for the smooth take-off of the common currency: single-digit inflation, central bank financing of government deficit of less than 10% of the previous year’s revenue, a government budget deficit of no more than 4% of GDP, and enough foreign exchange reserves to cover three months of imports.

As of June last year, only Nigeria was close to reaching the required goals. Ghana is doing particularly badly: battling a double digit fiscal deficit, double-digit inflation as well as other domestic and external headwinds.

Other WAMZ members have had similarly inconsistent records.

Experts are of the view that the  European crisis holds lessons for Africa. Although the EU is an imperfect political union and has a monetary union coordinated by the European Central Bank, it does not have fiscal union.

European countries still control their budgets and spending. Without this fiscal alliance, the EU was unable to overcome “asymmetric shocks”, where some unproductive countries, such as Greece, suffered downturns and needed fiscal help while others did not. It was difficult to discipline members who breached the pact.
“We are really learning from the euro crisis,” said John H. Tei Kitcher, WAMI’s acting director-general.

“One lesson that stands tall is the need for individual countries aspiring to join monetary unions to be fiscally disciplined, transparent with their economic data with their peers and committed to converging to the agreed criteria,” he noted.

Fiscal discipline will help member countries to meet the convergence criteria and buffer them against potential shocks that could result from belonging to a monetary union. Such discipline requires a strong political commitment from member countries.

ECOWAS’s seven former French colonies use the CFA (for Communauté FinancièreAfricaine) franc as their common currency. These French-speaking nations—Benin, Burkina Faso, Côte d’Ivoire, Mali, Niger, Senegal and Togo—together form the West African Economic and Monetary Union (UEMOA).

On the other hand, the five English-speaking countries—Gambia, Ghana, Liberia, Nigeria and Sierra Leone—each use their own legal tender however.

Members of UEMOA and the CFA countries are also not meeting their targets but they still run a single currency.

An  expert on monetary union finds it interesting that CFA countries despite their inability to meet their targets have been able to achieve monetary union.

 “Even though they are not meeting their targets their deviation from those targets aren’t as wide as what we have in English speaking West Africa,” he stated. More importantly though they are able to get away with it because the CFA franc is effectively underwritten by France, which is why its value is tied to the Euro, the currency zone to which France belongs.

 “The challenge is whether we can individually as countries move towards a stable enough level of macro-economic performance in terms of monitoring of fiscal policies

The currency divide has long been one of ECOWAS’s major stumbling blocks.

Civil society groups, apparently distraught with the shifting of goal posts have challenged ECOWAS leaders to match their words with actions and ensure the implementation to the letter of Protocols signed to promote integration in the sub region.

Convener of a recent summit organised by EcoAxis Integration West African Limited, Shola Oshunkeye, maintains that the protocols on movement of persons, goods and the right to residency have been partially observed but largely exist only on paper.

 “If we want to achieve the kind of integration that member states of the European Union gleefully talk about today, the protocols will have to be revisited and the leaders of ECOWAS countries in the sub-region must walk the talk,” he said in an interview.

In spite of ratifying the protocol which ushered in the free movement of persons in the sub-region impeded by the colonial powers, several border checks continue to exist, some of them unauthorised.

This has resulted in severe harassment and extortion of money from travellers by security personnel at the numerous checkpoints.

 Free movement is also hampered by different official languages at border posts coupled with reports of torture and killings by security personnel in countries like Senegal and Gambia.


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