Is the West Africa Single Currency Ambition Feasible?

Friday, July 05, 2019 / 05:00PM /
United Capital Research / Header Image Credit: Africafeeds

Recently,
the Economic Community of West African States (ECOWAS), consisting of 15
countries, revived its plans to adopt a common currency “the Eco”, targeting
2020 as the new date for implementation across the member nations. This is
coming after a series of postponement since the initial 2003 target launch
date.

According
to ECOWAS, the preconditions for member countries to participate in the single
currency union are; budget deficit of not more than 4%; maximum average annual
inflation rate of 5.0% by 2019; maximum public debt to GDP ratio of 70.0%;
minimum of 3-month import cover; and consolidation of custom unions.

In
all, we reckon that the policy comes with a lot of benefits for member states,
ranging from; elimination of FX risks, a bigger and stronger single market as
well as a stable domestic economy. However, it is unlikely for most member
States to meet up with the set criteria by 2020. Save for a few member
countries in the Francophone bloc, majority of the members have inflation rate
above 5%, sharp rising debt profiles as well as a fragile external buffer.

Accordingly,
we believe the new launch date – 2020 – is likely to be missed again, as
most of the countries are yet to satisfy most of the preconditions.
Additionally, the fact that no progress has been made as regards the design and
production of the currency, adds to our doubt.