ECOWAS and the African Development Bank have resumed discussions on the introduction of a single regional currency, ECO, as part of extending West Africa’s regional integration strategy beyond 2025.
A common currency could reduce transaction costs and facilitate trade, but uneven macroeconomic convergence, inflation volatility, and economic instability make immediate benefits unlikely.
Recent measures, such as the relaxation of non-tariff barriers, the promotion of financial cooperation, and the lifting of sanctions against Guinea, demonstrate new momentum towards deeper economic integration in West Africa.
At a meeting held last week in Abuja, Nigeria, the African Development Bank (AfDB) and the Economic Community of West African States (ECOWAS) reignited talks on a common currency among ECOWAS member states.
The three-day meeting focused on extending the West Africa Regional Integration Strategy Paper (RISP), which expires in 2025. RISP aims to overcome dichotomies within ECOWAS. In other words, ECOWAS includes two blocs, the West African Economic and Monetary Union (WAEMU) and non-WAEMU countries, which have overlapping and sometimes competing missions.
WAEMU is made up of eight states that use the West African CFA Franc (XOF), while the remaining seven ECOWAS member states use their own currencies and none have free exchange.
The adoption of a single currency, ECO, aims to eliminate transaction costs caused by currency differences and facilitate trade.
However, the idea that there will be immediate benefits from a common currency, as outlined in RISP, is also unlikely, not least because of uneven progress in achieving macroeconomic convergence criteria, the volatility of inflation, and overall economic instability.
The past decade has addressed many barriers to economic integration in Africa. The African Continental Free Trade Area (AfCFTA), which was launched in 2018, has attracted 1.4 billion people and has a total GDP of over $3 trillion. The agreement entered into force with the potential to lift 30 million people out of extreme poverty.
However, the development of regional value chains has proven difficult due to non-tariff barriers (NTBs) and differences in regulatory and legal frameworks. Non-automatic licenses, which are issued only at the importer’s request after ensuring that legal requirements are met, are the most common NTB on the continent.
Sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT), designed to protect public policy objectives such as human and animal health, also vary across countries and pose trade bottlenecks.
However, recent efforts in West Africa indicate moves to ease these barriers. The 58th meeting of the West African Monetary Area (WAMZ) Technical Committee was held last Thursday, February 5, in Monrovia, Liberia.
“Liberia is very proud to host this August meeting as we discuss important issues surrounding the consolidation of ECOWAS monetary cooperation programs and deepening regional economic integration, including the launch of the long-awaited single currency ECO,” said Defupou Y. Zuo, Liberia’s Deputy Minister of Economic Management.
Another recent development is that on January 29, ECOWAS lifted all remaining sanctions imposed on Guinea after the 2021 military coup, marking Guinea’s full return to ECOWAS since its suspension five years ago.
Amid rising volatility and geopolitical turmoil from external forces, full economic integration of ECOWAS through a common currency could prove invaluable in building the bloc’s overall resilience and cementing its position as an emerging economy.
