By Umar Rahman, Bsc Developmental Economics
Plans are underway for 15 West African states (collective population of 385 million) to adopt the single monetary system Economic Community of West African States (ECOWAS), commonly known as ECO. With ECO due to be implemented in 2020, now is as good a time as ever to define the parameters of success for this system. The success of a single monetary system is defined by its ability to deal with austerity. This is because, in a recessionary environment, the two criteria for joining ECO will undermine human development within the region. Essentially, human development will be swapped for profits made from resource industries that are exposed to volatile prices.
Here in the European Union, we function under a similar system. On 1 January, 1999, the EU introduced its currency, the euro. Although the euro is not universally adopted by all member states, most peg their currency against it. If we claim that this is all about saving ‘transaction costs,’ it’s easy to jump the gun and say the ECO should go ahead. However, it is necessary to read the fine print and proceed cautiously.
Are there lessons to be learnt from the financial crisis in Greece?
We should be mindful of the lessons learnt from the EU’s forceful Franco-Germanic voice regarding austerity measures in the Greek financial crisis. This pursued a mandate established by the banking private sector that undermined collective European prosperity. Simply put, a bank bailout from the ECB funded by the IMF restructured debt onto the European taxpayer.
For Greece to make unrealistic payments, they needed a 4% GDP growth (over 10 years) while being subjected to fiscal cuts. Essentially, the Greek people were given an impossible task: the first two bailouts were like putting a plaster on an amputated leg. The Greek government was equipped with a liquidity problem, and with their legs cut off, they were asked to walk towards a false consciousness of propensity through impossible debt repayments. But how does the Greek bailout relate to ECO?
Simply put, one county’s spending is another country’s income. The two criteria mentioned earlier restrict the credit powers of member states. Nigeria, Ghana and Ivory Coast will be the primary players in this ‘Game of Thrones’, with the three countries competing to impose dominance over the rest of the region through monetary and fiscal policy. We see an example of the resource curse in Nigeria, who currently have the biggest GDP in Africa. The oil and gas sector makes two-thirds of GDP within the ECO region, and 86% of all Nigerian export revenue. Since Nigeria is exposed to changes in oil prices, it is crucial in times of prosperity for Nigeria to diversify their systemic risk into long term growth strategies. Profits from oil and gas must be reinvested in technology for sustainable growth. If the ECO region repeats the mistakes made in the Greek financial crisis by imposing unattainable financial loans during moments of austerity, they will risk humanitarian disaster.
Do economic gains translate to favourable social development (West Africa)?
However, economic gain is not just about reinvesting profits in renewable energy – investment should also focus on human capital. This means not only increasing funding for education but also working on reducing the endemic gender literacy gap. A transition from the oil and gas sector to the renewable energy sector must be met with appropriate grants and subsidies to meet the increased demand in skilled human capital.
Is the single monetary financial system ‘better’ than the current one?
Although deceptively economical at first glance, this is a deeply philosophical concern. Before ECO, 8 countries’ currencies were backed by France. Does West-Africa have the ‘right foundation’ to put an end to neo-colonialism? Or is this a reiteration of an economic ideology from the global-north being applied to Africa, privileging GDP growth over development and living standards?
Nigeria, Ghana and Ivory Coast will be the primary players in this ‘Game of Thrones’. With the three countries competing to impose dominance over the rest of the region through monetary and fiscal policy
With no dramatic structural changes within the ECO region (with the exception of a single monetary system that reduces the financial sovereignty of smaller countries), the economic gains will not translate into human development. We can now pay more attention to the new voices on the world economic table (Ghana, Ivory Coast and Nigeria), as one small step for the ECO region is one giant step towards ending neo-colonialism. But at what cost?