Forget the IF*C loan fiasco, the HIPC boondoggle, and the infamous zero tolerance policy. Forget all that, and think for a minute about the prospects of sharing a common currency with countries none other than Nigeria, Sierra Leone and Liberia. Once again, our government notorious for its indiscretion and policy gaffes is launching the people of Ghana yet into another policy debacle so catastrophic that our culture and institutions as we know them will change forever. Ghanaians would have awakened on January 1, 2003 to the reality of sharing a common currency, the Eco, with the second most corrupt country in the world, Nigeria, and war torn Sierra Leone and Liberia. Despite the immense impact monetary integration would have on Ghana’s economic and social institutions, our democratic institutions and civil libertarians have been reticent, and incredibly nonchalant about this issue as our elected officials and political appointees from Rawlings era to the present Kufour government push the country further and further into deep economic integration with Nigeria, Sierra Leone and Liberia. Ghana’s business community, professional associations, academics, labor, women movements, etc., need not be reminded of how social and political upheaval in Sierra Leone and Liberia, and crime infestation in Nigeria would undermine the credibility of the common currency. What every Ghanaian must realize is that deep economic integration is based on trust, and whether we are ready to put our trust especially in Nigeria at this time or in the future date is a matter that must not be left solely for our gullible politicians to decide. The travails of the euro in the early stages of its introduction are a stark reminder of the dangers of corralling different and divergent economies into a single currency. Under a single regional currency, normal cyclical movements in a country's macroeconomic indicators suddenly become threats to regional stability, and by corralling our economy with Nigeria, Sierra Leone and Liberia we are in fact subsuming the intractable socio-economic problems prevalent in these countries. Political upheaval in Sierra Leone and Liberia, and Nigeria’s checkered history of crime and serious economic mismanagement would always inflict irreparable damage to the new single currency and Ghana’s fragile economy. For monetary integration to succeed and inspire confidence among the world’s notable currencies, there must be a dominant economy in the region, which would withstand economic shocks and onslaught from arbitrageurs. The only common currency zone in the world, the euro, is strong and powerful and rivals the US dollar because Germany, the dominant economy in the region has a preponderant weight in the currency and plays a major role in the EU’s monetary policy. In fact, the European Central Bank which sets monetary policy for all 12 nations that are members of the euro is located in Germany’s financial capital, Frankfurt, and is regarded by many in the banking profession as a prototype of Germany’s Bundesbank. It is therefore no surprise that Germany’s central bank controls European monetary policy and has a deepening impact on the euro. It is also worth noting that, in spite of Germany’s economic power, the size of the other EU members provides complementarities to the German economy an added stabilizer to the euro, in that, even though Germany has the biggest economy in Europe its GDP is less than that of France and Italy combined. Therefore if Germany’s economy falters, France and Italy can still provide a cushion for the euro. Nigeria no doubt is the dominant economy among the proposed six-nation single currency union (Nigeria, Ghana, The Gambia, Guinea, Sierra Leone, and Liberia), and commands about 75% of the group’s total GDP. There is no balance and complementarities in the economies of the six nations as in the case of the EU. In this case, the strength of the new currency would depend largely on the performance of Nigeria’s economy, which also means; Nigeria would carry a preponderant weight in the new currency and dictate monetary policy for the region. But unlike Germany’s positive influence in the euro, Nigeria’s social and economic disposition would be counter productive to regional initiatives and inevitably give the new currency less legitimacy and credibility. Here are some facts. According to the U.S. State Department, Nigeria suffers from ill-maintained infrastructure, and possesses an inconsistent regulatory environment inimical to both monetary and fiscal policy formulation. It enjoys a well-deserved reputation for endemic crime and corruption, and ranks as the second most corrupt country in the world after Bangladesh. Criminal fraud conducted against unwary investors and personal security is chronic problem in Nigeria. In a workshop organized in Abuja by the Independent Corrupt Practices and other Related Offices Commission (ICPC) of Nigeria in August 2002, Mr. Howard Jeter, the US ambassador to Nigeria remarked that the efforts of the Nigerian government in attracting foreign investment are not yielding results because investors are being scared away by the level of corruption in the country. It was also observed that the stock of capital flight from the country is now more than twice the size of GDP. As if this is not bad enough, the country’s total debt stock now stands at $30 billion, and constitutes about 65% of GDP. According to the ICPC workshop, the country’s debt amounts to 20-30 percent of total exports, three times the national education budget and nine times the public health budget. Budget deficits have become a fact of life in Nigeria’s fiscal management, mainly because of weak legal and institutional framework for public resource management. It was noted at a survey by Nigeria’s Ministry of Finance that about 40% of the projects for which loans were contracted were never started (even though the loans were fully drawn), and of the remaining 60%, hardly any of them was economically viable to generate returns to service the debt. Untaxed and unregulated revenues (black market activity) – by some estimates – account for between 40% and 45% of GDP and present a real problem for fiscal policy implementation. But worse yet, about 70% of Nigerians (more than double the combined populations of the five remaining countries in the eco zone) live in absolute poverty, despite the country’s sixth ranking in world oil production. With only 7-8 million of 120 million people in the labor force, and unemployment officially at 65%, most Nigerians survive by scraping out an existence in the "informal economy" or small-scale peasant farming. Such is the profile of the dominant economy in the eco zone. Currencies do not do well in an environment where there are no strong monetary and fiscal policy foundations. Also as a store of value, and a medium of exchange, currencies lack stability and credibility when there is absence of free market forces at work as a result of government corruption and economic mismanagement. The Nigerian naira has seen many bouts of volatility and depreciations as long as anyone could remember for these same reasons. According to The Shelter Rights Initiative (SRI), a civil society advocate for economic, social and cultural rights in Nigeria, the naira has depreciated against major currencies by 45% in the three-year period, between May 29, 1999 and May 29, 2002. The group predicts a further depreciation of the naira citing high inflation and high interest rates as the main causes. Also, a report in the February 14, 2003 edition of Nigeria’s Daily Trust points to a situation where the continuous depreciation of the naira has become so alarming that businessmen in Nigeria are already relocating to the republics of Benin and Niger to benefit from the stronger French franc. So how would a single currency regime with Nigeria as a dominant economy benefit Ghana when in fact Nigeria has a dismal record of managing its own currency? Ghana’s Mr. R.D Asante, Technical Adviser to the West African Monetary Institute (WAMI), does not see anything wrong with the unholy alliance. In his response to the IMF criticism of Nigeria’s inclusion in the monetary union, which was featured in the January 23, 2003 edition of the Ghanaian Chronicle, Mr. Asante, in an emotional outburst characteristically pooh-poohed the IMF statistics, and asked, "How can Nigeria be a problem?” "Every country is facing her own problem they are just exaggerating." But who can blame Mr. Asante for his emotional outburst and lack of understanding of the issue at hand? Our government has no moral authority to point a finger at Nigeria for economic mismanagement and corruption. According to statistics from WAMI, as at 2001, Nigeria and Ghana, which should be the leading economies in the proposed common currency zone had inflation rate of 16.1 and 21.1 percent respectively, more than the single digit rate convergence criteria set by WAMI. The two countries also were in deficit in other primary and secondary criteria set by WAMI, thus necessitating the postponement of the launch of the new currency on January 1, 2003. It is the classic blind leading the blind. The question we must ask the Kufour government is, why the rush? After all, it took the Europeans (with their advanced economies) 50 years to align their economies through trade and co-operation dating back to the Treaty of Rome in 1957. Europe’s approach for economic and monetary integration began in 1968 with the Warner Report, and was centered on a stage-by-stage outline requiring self imposed discipline of national policies by member countries in setting of fixed exchange rates which were allowed to fluctuate within a basket currency, the ecu, made up of fixed percentages of the participating national currencies. This approach was the first attempt by the group to align and harmonize their economies even before the 1989 Delos report laid the foundations for the euro, and before the Maastricht Treaty of 1992 provided economic policy foundation for European Monetary Union (EMU) and the single currency. While it took the Europeans seven years- from 1992 to 1999 – to meet the convergence criteria set by the Maastricht Treaty before the euro was finally adopted, our government and the five other West African governments, spear-headed by Nigeria’s Olusegun Obasanjo, characteristically believe they can somehow wave a magic wand and miraculously bring their poorly managed economies into alignment in two years to make a common currency feasible. Well, reality hit home on the convergence day, January 1, 2003, when all the six member countries failed to meet the convergence criteria. They will try again in June 2005. Perhaps, the ultimate question we must ask the Kufour government is, what is in it for us? If we think armed robbery is a menace in Ghana now, wait till we converge our currencies. The spillover of Nigeria’s crime in our cities and towns will far outweigh any potential benefits that would accrue to us by converging our currencies. Also, the free movement of people inherent in deep economic integration would mean the influx of 78 million unemployed Nigerians to Ghana in search of greener pastures. What our government and the people of Ghana do not realize is that the increase in economic interdependence and the likely intensification of economic-policy coordination with Nigeria and other member states would bring about synchronization of economic cycles in Ghana and the region. Therefore, a misstep especially by Nigeria, because of its size, would send shock waves throughout Ghana’s economy and the rest of the pact. But worse yet, under a common currency regime, our government will have no monetary policy tools available to it to correct the persistent and unavoidable economic shocks emanating from Nigeria. It will have to rely on its own budgetary policy – i.e., curtail spending by laying off workers, increase taxes, increase national debt by borrowing more money etc. - to absorb the made-in-Nigeria shocks. This is why every Tom, Dick, and Harry in Ghana must be concerned about Nigeria’s participation in the proposed single currency for the region. Ghanaians should also be wary of all regional endeavors under the auspices of ECOWAS, especially in issues regarding policy implementation and regional cooperation, because since its inception, all the lofty objectives of the sub-regional body are yet to be realized. ECOWAS was created in 1975 by 16 West African countries to maintain and enhance economic stability, foster relations among member states and contribute to the progress and development of member countries. This is interpreted as meaning the fostering of trade, commerce and industrial exchange, monetary and banking harmonization as well as peace, stability and security in the sub region amongst its member states. Yet after more than a quarter of a century of ECOWAS’ creation, intra-trade in the region accounts for only 11 per cent of the total trade with countries outside the region. Also, all the members of ECOWAS, except Nigeria and Cape Verde, fall within the 33 African countries classified as HIPC by the World Bank. Peace, stability and security in member states have become an illusion in view of ECOWAS multiple failures in Liberia, Sierra Leone, Guinea Bissau and now the Ivory Coast. ECOWAS as a regional organization lacks organized, efficient and effective conflict resolution mechanism and strategies, both at the secretariat and inter-government levels, and cannot be trusted to oversee such a complex and technical operation as launching a new currency for the six nations. It is deja vu all over again, notwithstanding the election of our own President Kufour as the current chairman of the sub-regional body, whose NPP government in the past two years has equally displayed poor judgment in policy formulation and implementation. We in Ghana should urge our government to follow what more than 30 countries from Cape Verde Island to Estonia have done with their currencies when chronic high inflation and monetary instability threatened their embattled economies. These countries have wholly or partially pegged their currencies to the euro so as to import sound monetary policy, stem local inflation, attract foreign investment, and build a healthy financial base with lower interest rates. Countries like Yugoslavia, Cyprus, Macedonia, and a number of former French and Portuguese colonies in Africa have pegged their currencies directly to the euro. Ghana should join the 14 CFA African countries that have already pegged their currencies to the euro, and start negotiations for entry into free trade zone with the EU. This step would no doubt instill discipline in our money managers in Accra and force them to commit to a realistic structural improvement and macroeconomic stability that would approach that of the EU. There are many who would scoff at the suggestion of pegging the cedi to the euro, but it is our only hope as a nation in building a sound and healthy economic and financial base after many years of reckless and misguided monetary and fiscal policy escapades by the Rawlings and the Kufour governments. The choice is between pegging our currency to the euro as the 14 CFA African countries and the growing numbers of countries have done, and joining a single currency union with the six West African neighbours who have nothing to offer us but grief. This issue is too important to ignore; it should therefore become a campaign issue in the 2004 election.
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