IKENNA OBI
It is now certain that the West African Monetary Zone (WAMZ) launched in December 2000 by the Heads of State of Nigeria, Ghana, Gambia, Guinea, and Sierra Leone, and Liberia, which later showed interest in joining the WAMZ, would not achieve a common central bank …
It is now certain that the West African Monetary Zone (WAMZ) launched in December 2000 by the Heads of State of Nigeria, Ghana, Gambia, Guinea, and Sierra Leone, and Liberia, which later showed interest in joining the WAMZ, would not achieve a common central bank and a single currency in 2009 as scheduled following the inability to attain such in 2003 and 2005. The reason for this continual failure borders essentially on the lack of considerable economic convergence among the monetary union members. This situation has been further compounded by the on-going global financial crisis that has impacted negatively on the inflation rates and exchange value of the currencies of the member countries.
It is necessary to recall that the member states of WAMZ conceived that the monetary zone should run parallel with the West African Economic and Monetary Union (UEMOA) which was established by a treaty of January 10 1994 between seven largely francophone states of Benin, Burkina Faso, Cote d’ ivoire, Mali, Niger, Senegal. The eight member state of UEMOA, which is Guinea Bissau joined in May 2007. With a common currency, the CFA issued by Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO) has enjoyed the backing of the French treasury and has a fixed convertibility with the Euro. The long term aim of the regional body – Economic Community of West African States (ECOWAS) is to achieve a single currency covering both the Anglophone, francophone and lusophone areas of West and Central Africa, thus merging the UEMOA and the WAMZ.
Following from the meeting of Central Bank Governors of the WAMZ countries, held recently at Abuja, Chukwuma Soludo noted emphatically that the WAMZ countries can build a single economic space in West Africa and create prosperity for the more than 200 million people in West Africa, but the foundation must be solid and sustainable.
Commenting earlier on this sustainable foundation, Temitope Oshikoya, the DG of West African Monetary Institute (WAMI) at the Golden Jubilee international conference of the CBN highlighted that financial integration is a necessary precondition for a smooth transition towards a monetary union among the WAMZ countries. Oshikoya specifically noted that that the financial sector must be adequately prepared to promote financial inclusion and sustain a changeover to a new currency. Some countries in the WAMZ have established stock exchanges but they operate within the confines of the national boundaries and few linkages to other member countries. Furthermore, Oshikoya harps on the importance of openness, factor mobility, degree of commodity diversification, similarity of production Structure, price and wage flexibility, and similarity of inflation Rates, and a degree of Policy Integration as necessary factors that would facilitate the easy establishment of a monetary union among WAMZ countries.
In a similar vein, Ben Aigbokhan, a Professor of Economics at the Ambrose Alli University, Ekpoma is equally of the view that as desirable and beneficial as ECOWAS monetary union would be, the necessary and sufficient conditions are yet to be met.
He is of the opinion that the considerable absence of a disciplined leadership, traditional national rivalries, [and] political commitment threatened the eventual establishment of a regional wide common currency in addition to the paucity of cross border trade and financial flows.
Oshikoya commenting further on the issue of necessary convergence between the economies in WAMZ went beyond the criteria already set by WAMZ such as single digit inflation rate, external reserves capacity to cover imports of 3 months, fiscal deficit/GDP ratio of 4%, Central Bank financing of fiscal deficit in the region of 10%, and noted that legal, political, structural and market convergences were essential. Comparing the preparedness of the Gulf Cooperation Council, (GCC) which is presently a trade bloc comprising the six Arab states of the Persian gulf – Bahrain, Omani, Qatar, Saudi Arabia, Kuwait, United Arab Emirates and the WAMZ countries for a monetary union Oshikoya is of the view that the surplus fiscal deficits, well capitalized banking system, and the similarity in productive investment will make GCC, s transition to a full monetary union less cumbersome.
Read Also: Nigeria’s money market rates stay low on N474.9bn inflow
The GCC set up in 1981, had set 2010 as its date for achieving a monetary union. If the GCC eventually transforms into a monetary union in 2010 or later, it would be the second most significant monetary union in terms of population and GDP following after the Eurozone.
Following the successful European experience of achieving a monetary union- the Euro zone, both Oshikoya and Aigbokhan agree that the model of pursuing a high degree of economic convergence was primary and strategic and should precede the move towards a single currency. The attempt by the WAMZ or ECOWAS member countries to do otherwise is like putting the cart before the horse. The eventual effective establishment of a E urozone in 2002 by the European Union was a result of its cumulative experience in a systematic economic cooperation among the member countries (e.g. the European Coal and Steel Community, European Atomic Energy Community) and the evolution of pan European institutions that worked towards managing differences and setting up common achievable standards for members.
It is significant that this economic cooperation and common institutional experience is presently lacking in the West African sub region. Also, the plan for a monetary union is still kept to the chest of political leaders and bureaucrats. Civil society is yet to be fully abreast with the developments towards the achievement of a common currency for either the WAMZ or the eventual one for the region.
There are serious fears that with the lack of political will common among political leaders in the region, the current periodic shifts of the achievement date of a monetary union may become perennial and with a large section of the civil society aloof, there may not be credible watchdogs to mobilize positive pressure on governments.
For now it is pertinent that the political leaders of both WAMZ countries and of the entire region realize that it took Europe over 40 years to achieve the now model Euro zone, and the Europeans achieved this in stages, through a deliberate and phased evolutionary plan. Thus, as the WAMI DG has rightly noted, the journey towards a monetary union is a marathon not a sprint race.
