While the 20th century largely saw West Africa secure political sovereignty, the region seemingly has yet to secure monetary sovereignty into the 21st. Currently, eight West African countries find themselves members of the greater “Franc Zone,” a currency union that, alongside six Central African countries, uses the CFA franc currency which is tied in value to the euro. While establishing a currency union backed by the strong European dollar may at first glance sound highly favorable, however, the CFA franc has largely failed to provide the expected benefits of a currency union. That is, lower transaction costs and greater intra-regional trade. Economist Kako Nubukpo explains that the franc “has not generated a process of intra-community exchange. The second criticism is that of competitiveness.
The French CFA, pegged to the euro, is too strong a currency because it acts as a tax on exports and a subsidy on imports. As a result, you have trade balances that are structurally in deficit.” In other words, much of the problem inherent in West Africa’s present currency union is that the currency itself is way too overvalued. With an overvalued currency, the region’s economies would struggle to develop the export sectors they heavily rely upon for revenue, instead promoting a greater reliance on foreign investment as well as economic fragility by relying upon one to a few commodities for most exports.
It’s in light of these joint issues that steam has picked up for a new currency union in West Africa, divested from any fixed exchange rates. Named after the 15-member Economic Community of West African States (ECOWAS), the “eco” currency was introduced by the Community in the early 2000’s, yet has faced four separate postponements in its launch, with the first in 2005 and the latest in 2020. Central to these obstacles are the four “primary criteria” that each of the 15 members must meet before adopting the currency: a single digit inflation rate, a fiscal deficit of at most 4% of GDP, no more than 10% of tax revenues being financed by the central bank, and gross external revenues that can cover imports for at least three months. By fiscal year 2011, only Ghana had met these four criteria plus an additional six “secondary” criteria.
Meanwhile for the rest of ECOWAS, recurring delays in the currency’s launch have become the norm as the developing region desperately searches for economic stability. Nonetheless, economists fault this conflict between criteria and circumstances as the fateful obstacle in establishing the eco. Whereas the establishment of the eurozone came between developed, stable European democracies, the high volatility of West Africa’s economies may render the satisfaction of the eco’s criteria impossible. Writing for Brookings, senior fellow Aloysius Uche Ordu contends that, “the euro lessons show that even with robust institutions and strong political commitment, sustaining a single currency remains a challenge.
These challenges are likely to be much more difficult to surmount in West Africa where the pre-conditions for success, including strong political will and robust institutions, are evidently absent.” Consider the difference in Democracy Index scores for West African versus European countries, and both their disparities in economic freedom and tax revenues as a share of GDP. What these metrics try to summarize is the ability for European democracies to reflect and promote economic development while maintaining their strength through adequate revenue, a process much less evident in developing West Africa.
Finally, equally if not more worthy of mentioning is instability in West Africa’s primary means of economic growth: commodity exports. Sub-Saharan Africa’s top five exports consist of petroleum oil, gold, refined copper, unrefined copper, and diamonds, all volatile commodities that fluctuate greatly in price over time. As these crucial exports change in value, so will the revenue they generate for their African economies of origin, meaning that figures such as inflation and economic growth may be at the mercy of global market forces on the aforementioned commodities. Thus, picture the circumstances needed for every member of ECOWAS to meet the ten total criteria: not only must every nation possess an at least somewhat stable sense of governance and economic policy, but each of them must also be free from sudden swings in revenue which naturally come about through export centralization in a given commodity. Even if every nation does meet these standards, or if the criteria is reformed to allow the eco to come about, these external shocks could easily threaten to destabilize the hypothetical currency union if drastic fiscal responses can’t be taken by other member governments.
In total, then, the idea of a self-sufficient currency union in West Africa remains to be quite the elusive goal, as evidenced by its many delays and postponements. Subjective volatility and instability, both political and economic, in West Africa not only endangers but would surely extinguish any attempt at a common currency in the region. If anything, ECOWAS countries ought to resort to alternative means of developing intra-regional trade.