The Economic Community of West African States (ECOWAS) has adopted the name ‘ECO‘ for the planned West African single currency. The roadmap is after the integration of the regional economies (Wes, East, South, etc), they will merge at the continental level as one single African currency. If you want to understand the impacts, click to read – I wrote a lead paper for the African Union during an African Union Congress on this topic.
The 15 member group announced at the end of an ECOWAS summit in Abuja, Nigeria’s capital on Saturday.Six member countries, including Nigeria, Liberia, and Ghana, could be swapping their currencies for a new one – the ECO. Eight ECOWAS countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo) currently jointly use the CFA franc.
Interestingly, the single currency is a regional or continental project that will favour Nigeria. Unlike the African Continental Free Trade Agreement (ACFTA) with its “rule of origin” risk to Nigeria, Nigeria is the risk factor in the single currency project. With our reckless spending and rambo-budgetary maneuvers, any currency union which Nigeria is a member, in West Africa, will see massive stress since all the other member states are inherently small, economically. Yes, Nigeria’s problems become everyone problems since everyone will be governed by a supranational bank which will be hedged to the Nigerian economy.
If you are part of a system where one guy controls 70% portion with the remaining 14 people sharing 30%, the big boy will be the key-main risk. Nigeria’s economy is largely West Africa’s economy as we are exceedingly dominant. The economy of Lagos is the second largest economy in West Africa after Nigeria!
In other words, no matter what Liberia does, if Nigeria is having problems with its economy, ECO will have challenges and Liberia will struggle. Why? The economy of Nigeria is what will influence the performance of ECO in West Africa. Magically, the small Liberian economy which is not up to the economy of Eti Osa local government area in Lagos state will be under the shadows of the big brother named Nigeria. There will be welfare losses to these smaller countries but none can rattle Nigeria because they are very small. All of them will hope Nigeria gets all right, otherwise ECO will cause havoc in their economies.
This is the deal: there will be huge welfare loses if Nigeria messes up and ECO fades. But where Nigeria acts well, West Africa will rise because single currency will boost trade and investment in the union while reducing frictions in commerce and industry. Yes, the exchange rate frictions among Naira, Cedi and other West African currencies (all will not exist by then) will disappear.