*Nigeria, 5 other countries’ road to monetary union
20 July 2014, Lagos – With less than six months to the deadline set aside by the West African Monetary Zone (WAMZ) to adopt a single currency for Economic Community of West African States (ECOWAS), experts have disagreed on the ability of WAMZ to achieve a unified payment system for the countries within the sub-region, namely Nigeria, Ghana, Gambia, Guinea, Liberia and Sierra Leone, by 2015.
The deadline has been shifted twice in the past. While some experts said the new deadline is not realisable, others called on members of WAMZ and ECOWAS to first ensure a common capital market and proper economic integration, in order to pave the way for a single currency in the region.
Dr. Okon Umoh, a former lecturer, economic expert and Senior Programme Manager, West African Institute For Financial and Economic Management, Central Bank of Nigeria (CBN), Learning Centre, Lagos, speaks on regional integration, the rationale, challenges and prospects, as well as the measures needed to put in place to achieve single currency for ECOWAS.
Looking at the fact that 2015 is very close, do think the plan to achieve a single currency for the economies within the sub-region is still realisable, with less then six months to the deadline?
To start with, formal economic integration can take place in stages, beginning with the lowering or removal of barriers to trade, which culminates in the creation of an economic union.
As the economies of co-operating countries become completely integrated into a single market, there should be need for common stance in social policy on education, health care, unemployment benefits and common political institutions. A single market is the mid-point of integration where the economies of co-operating states should become integrated for all barriers to movements of labour, goods and capital to be removed. At this stage, the integrating states should set a common external tariff on goods from other countries known as Customs union.
A further step in the process of economic integration should be the adoption of a common currency, with monetary policy regulated by a single central bank.
Regions also need post-independence economic integration to gain bargaining power and survive economically against the threat of marginalisation in the globalisation process.
It should also aim at achieving efficiency through enhancement of commitment to harmonisation and integration, protection of the integrity of the region, reduction in transaction costs through provision of common services and effective use of scarce human resources. Regional integration is appropriate for Africa, as a continent characterised by small countries, small economies and small markets. What is the issue, however, is whether the linear model of regional integration currently, defining the African integration paradigm, makes sense for the Continent.
What are the economic benefits that would come with regional integration and adoption of single currency for the sub-region?
The advantages of regional integration include trade creation as member countries have wider selection of goods and services not previously available and more trades between member countries. Others include, political cooperation, as a group of nations could have significantly greater political influence than each nation would have individually, employment opportunities, as economic integration encourages trade liberation and could lead to market expansion for more investments into the country and greater diffusion of technology.
It creates more employment opportunities for people to move from one country to another to find jobs. For example, industries requiring mostly unskilled labour tend to shift production to low wage countries with regional cooperation.
Regional integration fosters competition, access to wider market, larger and diversified investment and production, socio-economic and political stability as well as bargaining power for the countries involved. It could be multi-dimensional to cover the movement of goods and services, that is capital and labour, socio-economic policy coordination and harmoniation, infrastructure development, environmental management, and reforms in other public goods such as governance, peace, defence and security.
Some economic experts are of the opinion that regional integration has some demerits. What is your take on this?
Well, the challenges are perceived in creation of trading economic blocs, because regional integration may increase barriers against non-member countries. National sovereignty is also a point in question, as integration requires member countries to give up some degree of control over key policies like trade, monetary and fiscal policies. The higher the level of integration, the greater the degree of controls that needs to be given up. Also, integration could therefore, be complicated by perceived or real gains or losses among the members that may lead to disputes and a sense of loss of national sovereignty.
Individual countries that desire to integrate are at varying stages of development. Africa engages at the periphery of the global economy, as it is evident in the continent’s declining share in global production and trade. High cost of trade transactions culminating in high cost of doing business, poorly developed cross-country connections leading to high transport costs, lack of skills and capital to establish and operate sophisticated modern communication systems, geographical factor, as most African countries are landlocked, also low per capita densities of rail as well as road transport infrastructure are among the challenges.
Others include, lack of information at a reasonable cost, small domestic markets and continental fragmentation, which translates into lack of scale economies in the production and distribution of goods and services as well as colonial orientation in geo-political configuration of Africa among other issues.
Notwithstanding, regional integration in the sub-region is important. For instance, the Organisation of African Unity (OAU) in 1964 reflected the awareness, by the leaders of the day, that Africa’s strength was rooted in Pan-African cooperation. From the beginning of the decolonisation process in the 1960s, the establishment of sub-regional economic communities was a significant part of Africa’s development strategy.
In the period from 1960s to 1980s, several inter-governmental economic cooperation organisations had been established to promote technical and economic cooperation. These regional agreements in Africa generally sought to expand the growth of intra-regional trade by removing tariffs and non tariff barriers, strengthen regional development through promotion of economic sectors, regional infrastructure and establishment of large scale manufacturing projects.
What is the way forward?
Overlapping membership of competing groups must be resolved to allow a clear political commitment to particular country groupings, the war and conflicts in a number of African countries, which have devastated transport networks, communications and other basic infrastructure need to be peacefully resolved, involvement of private sector in the integration process is vital and new policy instruments to deal with the fears of economic polarisation must be found, dispute settlement mechanism should be strengthened to ensure policy credibility.
Additionally, stakeholders in the sub-region should create confidence for investors that integration measures would not be reversed and that barriers to regional markets would not also be re-instituted overnight. Integration require strong commitment by member countries to implement the agreed arrangements, fair mechanisms to arbitrate disputes and equitable distribution the gains and cost of integration.