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WEST AFRICA: Currency Integration Still A Few Years Off

Michael Deibert

NEW YORK, May 30 2007 (IPS) - Gone are the days when the scowling face of dictator Mobutu Sese Seko gazed out from the face of Zaire’s paper currency, a denomination that inflation and corruption eventually made so worthless it was issued in notes of 5 million.

Long civil wars in Angola, Liberia and Sierra Leone have largely come to an end, and figures in a recent United Nations report appeared to shed a rosier-than-usual light on the historically tumultuous swath of land between the Tropics of Cancer and Capricorn.

With the situation in much of West Africa looking less threatening than it has in years, investors and officials in the European Union (EU) are hoping to explore ways in which financial institutions in both regions can forge closer economic links, though they remain wary of some of the potential pitfalls.

“It’s not about a single intervention, it’s a long-term project,” says Karim Dahou, an advisor to the Paris-based Africa Partnership Forum.

A recent survey by the United Nations Environment Programme Finance Initiative (UNEP FI) looked at banking practices in five African countries – South Africa, Nigeria, Kenya, Botswana and Senegal – and retuned with something of a mixed bag.

The report, “Sustainability Banking in Africa”, praised what it called the “expansion of international standards, guidelines and corporate governance codes” among African banks, as well as “the growing realization in the financial community that accounting for environmental and social issues during product development can increase new market opportunities.”

However, the report also cast a somewhat wary eye towards the region’s lack of political stability and the need for “more flexible and less restrictive financial regulatory frameworks” in the African banking sector.

One of the stumbling blocks in the streamlining of economic relations between the EU and West Africa, observers say, could well be the fate of the CFA franc (colloquially known as the céfa or the more prosaically simple “franc” in French). It is a colonial vestige of a currency currently in 12 countries of formerly French-ruled Africa, as well as the former Portuguese colony Guinea-Bissau and the once Spanish-ruled enclave of Equatorial Guinea.

Created concurrently by the French government in December 1945 along with the CFP franc, which served French Polynesia, the CFA franc currently stands at a fixed rate of 655.957 to the euro. The currency first derived its CFA acronym from Colonies Françaises d’Afrique, and later from the Communauté Française d’Afrique.

Since the end of direct French rule of West Africa in the 1960s, however, the monetary situation with the currency of its former coloniser has grown ever-more complex, with two different currencies – the West African CFA franc and the Central Africa CFA franc. Both retain the CFA name and locked exchange rate, but with notes and coins of the denominations not accepted in countries that have opted for one form of the CFA franc over the other.

“The French have promised the Francophone countries that France wouldn’t abandon them and the CFA, so nobody knows what’s going to happen, the fate of the CFA might be left hanging,” says Dr. George Ayittey, Distinguished Economist in Residence at American University in Washington.

“There is no question that streamlining all those common currency transactions would greatly facilitate commerce not only between the EU and Africa but within Africa itself, but the practicalities of doing this have always remained daunting,” Ayittey told IPS.

The West African Monetary Zone (WAMZ ) group of countries was formed in 2000 by a quintet of Economic Community of West African States (ECOWAS) nations in an attempt to begin the process of introducing a stable, unified West African currency to seriously compete with the CFA franc.

Though the group’s most populous country and the world’s eighth-largest oil exporter Nigeria largely dictates the direction of the coalition, a perhaps more significant factor stemming the group’s ascendance is that, of its members, only Guinea is an officially French-speaking nation, with the others – Gambia, Ghana, Sierra Leone – all existing in the English-speaking sphere.

WAMZ has declared that – under the aegis of the Ghana-based West African Monetary Institute – it intends to launch a common currency for its members, dubbed the Eco, by 2009.

“Frankly, I doubt there will be any single currency in 2009,” said an analyst with the EU who follows West Africa’s economic progress closely, speaking on the condition of anonymity.

“ECOWAS is a good example of the ability of a few countries to overcome the strong divides between Francophone and Anglophone countries, but there are some political issues to overcome and it’s not clear at all that there’s enough trust between Nigeria on one hand and the Francophone on the other hand to create this currency,” he said.