News analysis: West African Countries Long for Mmonetary and Currency Integration

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Last updated at: (Beijing Time) Tuesday, October 01, 2002

News analysis: West African Countries Long for Mmonetary and Currency Integration

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The countries of west Africa have intensified their efforts towards achieving monetary and currency integration in 2004, for the adoption of the West African MonetaryZone (WAMZ) currency "Ecoi" for use throughout the sub-region.

The objectives are: facilitating monetary and trade integrationamong the countries in the WAMZ made up of Ghana, Nigeria, Sierra Leone, Gambia, Guinea and Liberia and the Union Monetaire I'ovest Africaine (UMOA) countries made up of Benin, Togo, Cote d'Ivoire, Niger, Mauritania, Senegal, Burkina Faso, and Mali; making it easier for UMOA and WAMZ to unite and facilitate ECOWAS integration.

The establishment of the Economic Community of West African States Monitoring Cooperation Program (EMCP) adoption in 1987 was to evolve a limited currency convertibility and introduce a commoncurrency in the sub-region.

M. O. Ojo, director general of the West African Monetary Institute (WAMI) established to serve as forerunner for the establishment of the West African Central Bank (WHCB), said the purpose for EMCP was meant to be achieved in 1994 but had to be extended to 2000 and further extended in December 1999 to 2004 dueto its inability to meet short-, medium- and long-term objectives on schedule.

The first step at economic integration in West Africa was the establishment of the Economic Community of West African States (ECOWAS) in 1975. Under the ECOWAS treaty, it was envisaged that the 16 member-nations would form a common market. Subsequently, the heads of state and government adopted the ECOWAS Monetary Cooperation Program (EMCP) IN 1987. Under the initiative, it was envisaged that all the countries would come together to form a single monetary one by 2000, from the eight currencies in the sub-region, one of which is the CFA franc.

The realization of this goal was to be approached in phases with defined action programs for the short-, medium- and long-term.In the first phase of the program, the West African Clearing House(WACH) was strengthened with a view to improving the efficiency ofits payment mechanism to boost inter-regional trade.

The specific measures during the period included the settlementof all clearing arrears in WACH, introduction of the ECOWAS Travelers' Cheque, the transformation of WACH into a specialized and autonomous monetary agency under the name of the West African Monetary Agency (WAMA).

The achievement of regional currency convertibility constitutedthe medium-term goal is the establishment of a single monetary zone for the sub-region. The common currency is to be issued by the WACB that would also define and execute a common monetary policy.

To achieve the ultimate objective of a single currency, member countries were required to implement a number of measures including: adoption of a market based exchange rate system with variability in the nominal exchange rate not exceeding 10 percent by the end of 1998 and 5 percent thereafter; the ratio of budget deficits to the GDP not exceeding 5 percent by 1998 and 3 percent by 2000; central bank credit to government not exceeding 10 percent of previous year's tax revenue and the achievement of single digit inflation rate.

In December 1999, the west African heads of state adopted in Lome, Togo, a decision to achieve the status of a single monetary zone in 2004.

From the foregoing, Ghana, Nigeria, Sierra Leone, Gambia, Guinea and Liberia collaborated to implement the WAMA program agreed upon in April 2000 by a mini-summit of the heads of state from the six countries meeting in Accra, Ghana.

This program is expected to evolve the operation of a common central bank and utilization of a common currency in these countries by 2003 and the merge of this currency by 2004 with the Franc's CFA to form one ECOWAS currency "Ecoi".

"By integrating the economies in west Africa, monetary integration will lead to the creation of a single regional market embracing over 210 million people. A common market involving 16 member countries with a GDP of over 100 billion US dollars is an enormous market, when compared with the otherwise fragmented markets of individual countries," said Oladimeji Alo, director general of the Financial Institutions Training Center (FITC) basedin Lagos, Nigeria.

"The expectation is for banks to leverage on the enlarged market to expand their scale of operations and, in the process reap the benefits of economies of scale for enhanced fiscal performance and economic growth and development of the sub-region," added the director general.

The challenger of monetary union for west Africa has been the ability to keep fiscal operations of government in consonance withthe monetary program of the common central bank to ensure price and exchange stability and reasonable economic growth.

According to Chris Itsede, director general of West African Institute for Financial and Economic Management (WAIFEM), Accra, Ghana, the challenge equally include "ability to maintain macroeconomic convergence in a group of countries that do not satisfy the preconditions for an optimum currency area especially if they experience a symmetric shocks and the ability to produce adequate, timely and accurate statistics for multilateral surveillance for a more robust monetary policy design and implementation."

Analysts think the most important ingredient required to accelerate the realization of the ECOWAS monetary integration is the political will of member states. This is because the macroeconomic performance within the sub-region vary from country to country and from all indications no government has made significant shift in fiscal and monetary policy to meet all convergence criteria required for the monetary cooperation program.

In the main, what is happening in the whole of Africa is expected to help actualize the monetary integration drive in West Africa. The African Union (AU) and the New Partnership for Africa's Development (NEPAD) are encouraging sub-regional economic and monetary integration so as to attain the goal of the AU and NEPAD.Much is expected in this regard form West Africa.

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