Eco now on backburner

The currency was designed and named the Eco, and it was going to be tested for an initial five-year period; but all that has changed now, and the central banks of member-countries have been sent back to the drawing-board.

Their task as technical advisers to the heads of states and the ECOWAS Commission is to study what led to the crisis in the backyard of their European counterparts -- where some countries have been unable to re-finance their government debt without the assistance of third parties, and where banks are undercapitalised and have faced liquidity problems.

Whatever the central banks come up with is likely to push back the realisation of a common currency for West Africa beyond the 2020 target.

This is because the ECOWAS Commission is now talking about the need for “deeper thinking” on the back of the euro-zone crisis.

“We saw in the last two years what happened in the European common market arrangement, where countries that do not have the backbone end up borrowing. If we are going to make that move, we need to clearly study and understand those factors that led to this kind of conflict in the euro-zone.

And if they are so grave that we cannot handle them, then we have to rethink our strategy,” Dr. Toga Gayewea McIntosh, Vice President of the ECOWAS Commission, told the B&FT on the sidelines of the Economist magazine’s Ghana Summit in Accra.

“Somehow I think fate has brought us to the point where we realise that it is not all rosy, because the best experiment we are seeing is the euro-zone. So the idea is not lost, but we want to be cautious as we go into it so that the weaker countries will not suffer more consequences,” he said.

The commission admits now that it was probably jumping the gun without ensuring first and foremost that true integration -- more intra-regional trade, a robust Customs regime, freer movement of people and goods -- was achieved.

ECOWAS’s French-speaking countries already have a common currency, the CFA, and the plan was that the English-speaking side would first introduce the Eco, by 2015, before being joined by their Francophone neighbours.

However, none of the six countries in the largely English-speaking West Africa Monetary Zone (WAMZ) -- Ghana, Guinea, Nigeria, Sierra Leone, The Gambia and Liberia – has since the common-currency dream was formulated in 2000 been able to meet to the four primary and six secondary convergence criteria required for its introduction.

The primary criteria are for each country to keep up a single-digit inflation rate at the end of each year; a fiscal deficit -- excluding grants -- to GDP ratio of not more than 4%; a central bank deficit-financing ceiling of 10% of the previous year’s tax revenues; and gross external reserves that can provide import cover for at least three months.

The six secondary criteria include a stable real exchange rate, a positive real interest rate, and the prohibition of new domestic default payments and liquidation of existing ones.

The countries are to also ensure that tax revenue is equal to or greater than 20 percent of GDP, wage bill to tax revenue is equal to or less than 35 percent, and public investment to tax revenue equal to or greater than 20 percent.

Ghana, which is the second-biggest economy in the WAMZ, achieved three of the four primary convergence criteria at the end of 2011 with single-digit inflation of 8.6%, international reserves covering 3.2 months of imports, and a central-bank deficit financing ratio within the 10% limit.

However, the country’s performance worsened in 2012 when it achieved only two -- inflation and international reserves -- of the primary criteria. Other WAMZ members have had a similarly inconsistent record with regard to the criteria for convergence, raising serious questions about the political will to launch the Eco.

Most analysts believe apart from the lack of will among ECOWAS governments, the eurozone’s problems will now dampen the aspiration to have the Eco at any time in the near-future.