The question if and when the West African region can enjoy a common currency based on a monetary union continues to exercise the minds of the region’s leaders. In recent years, the merits and demerits of monetary unions have gained a lot of attention. In the UK, for instance, the refusal of successive governments to give up the British pound and enter the Eurozone is often a subject for debate at each election.

The current beacon of multinational economic and monetary success, the European Union (EU) gave Greece a dose of macroeconomic medicine in exchange for an unprecedented bailout in 2010 that sent Greeks to the streets in demonstrations.  In the West African region, amidst accusations of continuing to feed funds to embattled Laurent Gbagbo in Côte d’Ivoire, the Governor of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCAEO), Philippe-Henri Dacoury-Tabley was forced to resign in late January.  This development pales against renewed threats of Gbagbo to remove Côte d’Ivoire from the union altogether. So, if monetary unions can be successful - as seen in the Eurozone  -  but they can also be imperilled due to political turmoil - as with the CFA zone and Côte d’Ivoire, then what lessons are to be learnt for the continuing efforts  of non-CFA West Africa to promote a common currency?

Despite some negative press, monetary communities continue to spring up. The Gulf States and the East African Community have in recent years given fuel to discussions about forming monetary partnerships. Dr. Temitope Oshikoya, Director-General of the West African Monetary Institute (WAMI), in a recent exclusive interview with GB&F, expressed unfailing optimism towards fulfilling his mandate to create the institutional and financial environment for the second West African currency, on behalf of the West African Monetary Zone (WAMZ) members consisting of the Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone, with Cape Verde serving as an observer.

The promotion of internal markets and trade is paramount to the ECOWAS region. The Euro zone’s success is partially due to the trade integration that took place prior to the monetary integration.

Trade among the EU is more than 60%, while in West Africa regional trade still languishes at about 10%. WAMI has worked with ECOWAS in carving a common external tariff (CET) regime to which all member countries have now adhered. WAMI is also continually working with ECOWAS in relation to the trade liberalisation scheme (ETLS) and it participates in the Trade Ministers’ Forum and Joint  ECOWAS-WAMI Taskforce on Trade.

The benefits of a monetary union are many. Dr. Oshikoya cites as an example the reduction in exchange rate uncertainties to the private sector and the general minimizing of price fluctuations. This will help businesses to correctly apply long-term strategies and plant roots in Ghana and the other WAMZ countries. Monetary policy becomes credible and one’s market reach instantly multiplies. The free movement of capital, labour and other resources within the zone will make businesses more nimble and better equipped to handle shocks, Dr. Oshikoya adds.

However, one does not have to look very far to note some disadvantages of monetary unions. Although quite a unique arrangement, the CFA region recorded a loss in global competitiveness of 23% between 1994 and 2005 due to its peg to the Euro and the latter’s fairly consistent appreciation.

The CFA’s nominal and real effective exchange rates appreciated continually at the cost of gross fluctuations in foreign exchange reserves, the majority of which are held by the French Treasury to the tune of 12.2 billion Euros which many Heads of State within the zone have said could have been better utilised as development finance.

The current account balance in the CFA zone has also been in deficit for a decade, standing at 6.4% of GDP as of 2009. But the number one disadvantage of any monetary union is the loss of control by its individual member states over monetary policy. Dr. Oshikoya is on a sensitisation campaign to win over even the toughest critics. “During our convergence council meetings we ensure that the chambers of commerce are invited and we send our documents to them. We are thinking of organising, possibly in June, a West African Investors Forum in collaboration with Bloomberg and Business Africa Events based in London. We are thinking of organising this to continue to sensitise the business community as to what the programme is all about.”

One unspoken aspect being reviewed by some analysts concerns Nigeria. Just as Germany serves as the EU policeman, many fear Nigeria’s hegemony within the WAMZ because of its significant population, geographical size and GDP. Outside of the fact that even WAMI’s Director-General is Nigerian and many of its initiatives are funded by Nigerian money, the mere concept of a West African currency was brought to the forefront by Nigeria. Even the CFA zone’s success is partially because of France’s neo-colonial influence at the centre of its operations. Will Nigeria therefore become WAMZ’s Germany or the CFA’s France?

The WAMZ economy has a combined GDP of US$390.6 billion and represents 73.3% and 19.1%, of ECOWAS’ and Africa’s GDP, respectively. But Nigeria is by far the most dominant economy, with 77% of the population, and 85.6% the zone’s GDP. Ghana follows with only 9.2% of GDP. But all the countries involved have shown themselves committed to the idea (if not necessarily all the convergence criteria). Dr. Oshikoya says that, “ultimately, the responsibility for the creation of a single currency belongs to the Heads of State. It is the Heads of State who will commit their countries to the single currency and a monetary union. And they can only be advised by their convergence council of ministers and governors of central banks. We at WAMI are servants of the convergence council. We cannot commit any country to a monetary union.”

Dr. Oshikoya describes the push for a single currency like preparing to marry. “Once you enter into [marriage] you do not want a divorce. So, the only way to make sure that you do not get a divorce is to prepare well, by doing courtship”.  He goes on to say “members need to understand one another”.

It remains to be seen what will happen to WAMI once the single currency comes to pass. It functions now as an interim institution with a clear end-date but no exit plan and if Dr. Oshikoya is right and the Eco is born in four years, WAMI’s mandate might have to change completely. But for now, according to the WAMI CEO, there is going to be a monetary wedding in 2015, and all of West Africa is invited. And possibly unlike in normal weddings, the baby - the Eco - may be borne on the very wedding day.

Among the many benefits expected from monetary union are the potential to attract direct foreign investment into a larger economic unit and the reduction in the annual costs of printing so many different currencies, as well as the potential for improvements in cross-border payment arrangements, thereby facilitating trade and commerce. A recent report on regional integration by the UN Economic Commission for Africa (ECA) states that “by comparison with international practices, African payment systems are often inefficient in terms of cost, time, convenience, adaptability and finality. An international fund transfer via electronic networks that takes just minutes to go around the globe can take two weeks to arrive at the cross-border beneficiary in some African countries because of geographical handicaps, and a check can take more than a month to clear in sub-Saharan Africa.”

As West Africa strives to become a more competitive region in the global economy, it is becoming clearer that an integrated and updated payment system is critical to its financial sector, especially one that is looking to expand its transactional volume.
With the reduction of high transactional costs in mind, WAMI’s boss has solicited the help of his former employer, the African Development Bank (AfDB) Group, in funding a Payment Development System Project to the tune of nearly US$20 million from its non-concessional window, the African Development Fund. The project aims to create the electronic systems needed to make integration efficient, through its Real Time Gross Settlement system that will include a scripless securities settlement system, retail payments automation, and a clearing system comprising automated cheque processing and an automated clearing house. The system also incorporates central banking applications and telecommunications infrastructure.

The advantage that Western Union and Moneygram have over banks in the area of remittances, for example, is that transfers are instantaneous.

Increasingly, even Western Union, Moneygram and such internationally-based money transfer systems, are being challenged by innovative African-inspired solutions by way of banking for the unbanked through mobile phone payment and money transfer systems. These alternative payment and transfer systems have become popular in Africa because intra-Africa bank wire transfers are much less reliable and more time consuming.  An improvement in inter- and intra-regional banking could spawn an increase in remittances which could further engender a greater number of financial innovations. The Cairo-based African Export-Import Bank, for example, has arranged for Ghana to borrow US$40 million in favour of a development bank in a transaction where the loan was backed by Western Union remittance receivables. This development points to great potential for the further securitisation and collateralisation of money transfers.

Dr. Oshikoya applauds Ghana’s achievements with payment systems. “Ghana has one of the best payment systems within the zone and we are indeed learning a lot from Ghana. Actually, we are using Ghana as a model when it comes to payment systems. And the Bank of Ghana has been very helpful, in terms of helping us to replicate what they have done in Ghana in other member countries, particularly in Gambia, Guinea and Sierra Leone,”  
Dr. Oshikoya told GB&F, adding that many other regional economic communities approach him for best practices and lessons learned.

Recognising some of the funding challenges facing his institution in light of its ambitious goals, Dr. Oshikoya has focused on resource mobilisation.  In March 2010, WAMI received a technical assistance grant of US$250,000 from AfDB, under the Nigeria Technical Cooperation Fund (NTCF) in order to help with capacity-building, statistical harmonisation, and the establishment of a legal framework which will allow the WAMZ to succeed.

Dr. Oshikoya is not stopping at the AfDB to fund WAMI’s activities. Although he comments that member countries are very regular with supporting the operational budget of WAMI, he says he also seeks out alternative sources of income. “We are working with the Africa Capacity-Building Foundation based in Harare (Zimbabwe) to also fund the activities of WAMI. ECOWAS itself is also gearing up to provide support for our ICT equipment and infrastructure. We are also trying to get the Islamic Development Bank to assist us. Now, in addition to the regular budget, the Bank of Ghana has also been very helpful to WAMI, in funding our current office complex (at the Gulf House, near Tetteh Quarshie Roundabout),” he states.

Dr. Oshikoya has had many other successes besides obtaining funds. The governors of the central banks of the WAMZ have signed a memorandum of understanding on cross-border banking activities, a likely impact of which will be an increase in South-South remittances. WAMI recently established the college of banking supervisors to encourage joint monetary supervision. In preparation for the monetary union, WAMI has drafted the legal framework for the West Africa Financial Supervisory Authority. WAMI is also working with the stock exchange and the securities and exchange commissions in member countries, particularly in Ghana and Nigeria to bring about the integration of these exchanges to facilitate cross-border listings. The Institute has also worked on the harmonisation of the rules for the collection, compilation and dissemination of statistics.

Source: Remittance and Migration Department, World Bank

Source: AfDB computation, Migration and Remittances Fact Book 2011 data.



Source: UNECA, 2009

After all, in order for a monetary union to work, all member countries must have macroeconomic indicators measured in the same way. However, outside of securing funding for WAMI and its initiatives, the principal concern of the Director-General is ensuring the macroeconomic convergence of members of WAMZ, that is, for each country to attain inflation rates of 5% or less per annum, fiscal deficits of less than 4% of GDP, central bank financing of budget deficits of less than 10% and foreign reserves of six months or more of imports. These targets are quite challenging for any emerging economy, and more so for relatively low-income countries.

As a result, the lack of compliance with these requirements of convergence has caused the repeated delay in the release of the ‘Anglophone CFA’. However, WAMI has instituted peer reviews every six months to try and help countries toe the line. Donor support is also helping by supporting national budgets with efforts to reach convergence targets. There is, for example, an ongoing US$215 million World Bank Poverty Reduction Support Credit (PRSC) being used to maintain fiscal discipline in Ghana.  The UK’s Department for International Development (DfID) has also indicated that it is providing £36 million to the Ghana Government through the Multi-Donor Budget Support (MDBS) mechanism. Most member states are also doing their best. The Central Bank of Nigeria, for its part, has in January raised its benchmark lending rate from 6.25% to 6.50%, and its cash reserve requirement for banks from 1% to 2% as precautionary steps to moderate inflationary pressures that are likely to result from several factors including, the implementation of the new salary structure in the civil service.

It should also be mentioned that the ‘Big 4’ criteria are not the only criteria desired for convergence. One of the six secondary criteria is the ratio of wage and salary expense as a percentage of tax revenue. In light of the Nigeria situation and with Ghana also implementing a Single Spine Salary Structure for government workers, the pressures to meet the criteria will be great indeed. Dr. Oshikoya comments that “We have to make sure that we are all moving in tandem in terms of the macroeconomic indicators. The member countries need to intensify their efforts in meeting the four primary macroeconomic convergence criteria. In the case of Ghana, for example, the fiscal deficit remains a major objective that still has to be met. The figures that we have indicate that the fiscal deficit as at June 2010 was about 12.5% of GDP which is quite high. And, in the case of Nigeria, inflation rates are going up again, way above 10%, because of the global financial crisis which affected food prices. You know, in Nigeria, food prices account for about 60% of the components of inflation.”

Although the WAMI CEO believes that all the member countries can attain the convergence criteria, the problem remains one of sustainability. Some of the widening budget deficits can be attributed to the responses of governments to the global financial crisis.

However, fiscal discipline will be a hard task in the years up to the 2015 anticipated deadline, as all member countries will be planning elections at some point during that time-frame and will be tempted in election years to grease the wheels of the incumbency by increasing public expenditure.

Some criticise the criteria for the single currency as being too severe, but the WAMI CEO quips that the conditions for single currency are much weaker than those of other monetary unions and that there are only four primary criteria to be achieved initially. Dr. Oshikoya also dismisses
any criticisms of the several postponements of the single currency.

“When the programme first started, the implementers had a lot of good faith but they were over ambitious. They wanted to have a monetary union in eighteen months. Meanwhile, the (Gulf Cooperation Council) which also started a similar process around the same time initially gave themselves ten years. Sometimes we get over-emotional. The GCC programme which was supposed to start in 2010 has now been postponed to 2015. And remember that, they are richer than we are, they speak the same language and they are all oil exporters. But in spite of all the advantages that they have over us, they still gave themselves a longer time frame to achieve their objectives.”

The promotion of internal markets and trade is paramount to the ECOWAS region. The Euro zone’s success is partially due to the trade integration that took place prior to the monetary integration.

Trade among the EU is more than 60%, while in West Africa regional trade still languishes at about 10%. WAMI has worked with ECOWAS in carving a common external tariff (CET) regime to which all member countries have now adhered. WAMI is also continually working with ECOWAS in relation to the trade liberalisation scheme (ETLS) and it participates in the Trade Ministers’ Forum and Joint  ECOWAS-WAMI Taskforce on Trade.

The benefits of a monetary union are many. Dr. Oshikoya cites as an example the reduction in exchange rate uncertainties to the private sector and the general minimizing of price fluctuations. This will help businesses to correctly apply long-term strategies and plant roots in Ghana and the other WAMZ countries. Monetary policy becomes credible and one’s market reach instantly multiplies. The free movement of capital, labour and other resources within the zone will make businesses more nimble and better equipped to handle shocks, Dr. Oshikoya adds.

However, one does not have to look very far to note some disadvantages of monetary unions. Although quite a unique arrangement, the CFA region recorded a loss in global competitiveness of 23% between 1994 and 2005 due to its peg to the Euro and the latter’s fairly consistent appreciation.

The CFA’s nominal and real effective exchange rates appreciated continually at the cost of gross fluctuations in foreign exchange reserves, the majority of which are held by the French Treasury to the tune of 12.2 billion Euros which many Heads of State within the zone have said could have been better utilised as development finance.

The current account balance in the CFA zone has also been in deficit for a decade, standing at 6.4% of GDP as of 2009. But the number one disadvantage of any monetary union is the loss of control by its individual member states over monetary policy. Dr. Oshikoya is on a sensitisation campaign to win over even the toughest critics. “During our convergence council meetings we ensure that the chambers of commerce are invited and we send our documents to them. We are thinking of organising, possibly in June, a West African Investors Forum in collaboration with Bloomberg and Business Africa Events based in London. We are thinking of organising this to continue to sensitise the business community as to what the programme is all about.”

One unspoken aspect being reviewed by some analysts concerns Nigeria. Just as Germany serves as the EU policeman, many fear Nigeria’s hegemony within the WAMZ because of its significant population, geographical size and GDP. Outside of the fact that even WAMI’s Director-General is Nigerian and many of its initiatives are funded by Nigerian money, the mere concept of a West African currency was brought to the forefront by Nigeria. Even the CFA zone’s success is partially because of France’s neo-colonial influence at the centre of its operations. Will Nigeria therefore become WAMZ’s Germany or the CFA’s France?

The WAMZ economy has a combined GDP of US$390.6 billion and represents 73.3% and 19.1%, of ECOWAS’ and Africa’s GDP, respectively. But Nigeria is by far the most dominant economy, with 77% of the population, and 85.6% the zone’s GDP. Ghana follows with only 9.2% of GDP. But all the countries involved have shown themselves committed to the idea (if not necessarily all the convergence criteria). Dr. Oshikoya says that, “ultimately, the responsibility for the creation of a single currency belongs to the Heads of State. It is the Heads of State who will commit their countries to the single currency and a monetary union. And they can only be advised by their convergence council of ministers and governors of central banks. We at WAMI are servants of the convergence council. We cannot commit any country to a monetary union.”

Dr. Oshikoya describes the push for a single currency like preparing to marry. “Once you enter into [marriage] you do not want a divorce. So, the only way to make sure that you do not get a divorce is to prepare well, by doing courtship”.  He goes on to say “members need to understand one another”.

It remains to be seen what will happen to WAMI once the single currency comes to pass. It functions now as an interim institution with a clear end-date but no exit plan and if Dr. Oshikoya is right and the Eco is born in four years, WAMI’s mandate might have to change completely. But for now, according to the WAMI CEO, there is going to be a monetary wedding in 2015, and all of West Africa is invited. And possibly unlike in normal weddings, the baby - the Eco - may be borne on the very wedding day.