How a single currency can unlock the full potential of AfCFTA in West Africa

BY SAMI TUNJI

Implementing a single currency in West Africa presents significant opportunities and formidable challenges. However, it could serve as a catalyst in unlocking the full potential of the African Continental Free Trade Area (AfCFTA), established in 2018. The AfCFTA is a monumental stride toward economic integration across Africa.

With a market encompassing 1.3 billion people, the AfCFTA aims to elevate intra-African trade from 16 percent to 38 percent by 2030, potentially lifting 30 million individuals out of poverty and increasing the continent’s Gross Domestic Product (GDP) by 7 percent by 2035. However, in West Africa, the full realisation of these benefits faces significant challenges, notably the region’s currency fragmentation.

The case of ECOWAS and the Eco

The Economic Community of West African States (ECOWAS), established in 1975, comprised 15 member countries with diverse colonial histories and monetary systems. However, as Burkina Faso, Mali, and Niger officially withdrew on January 29, 2025, ECOWAS now has 12 member countries. This region has a complex currency landscape as eight countries use the West African CFA franc, pegged to the euro and guaranteed by the French Treasury, while others, like Nigeria and Ghana, maintain independent currencies.

As the multiplicity of currencies introduces exchange rate risks and transaction costs, it is unsurprising that the cost of sending remittances within the region and the continent is far higher. A report by IFAD noted that the cost of sending remittances from South Africa to other African countries is generally higher than sending money to Africa from abroad. These costs range from 12 percent to 25 percent of the amount sent. This is a major challenge for trade within the region.

To address the challenge, among other reasons, ECOWAS has advocated for a single currency—the Eco—to enhance economic integration. The Eco aims to merge the existing currencies, eliminating exchange rate volatility and reducing transaction costs. Despite initial plans to launch the Eco in 2020, the initiative has faced delays, with a revised target set for 2027.

Benefits of a single currency for AfCFTA

A major benefit is the elimination of currency exchange barriers. A single currency would eradicate the need for currency conversions among West African nations, thereby reducing transaction costs and simplifying cross-border trade. This facilitation aligns with AfCFTA’s objective of boosting intra-African trade by making transactions more straightforward and less costly.

There is also the likelihood of price transparency and stability. For instance, ​the euro, introduced in 1999, has significantly enhanced economic integration and stability among its member countries, with benefits such as eliminating currency exchange costs, reducing exchange rate volatility, increasing price transparency, and deepening financial integration.

With a single currency, there can be enhanced monetary policy coordination. A common currency necessitates the establishment of a regional central bank, leading to harmonised monetary policies. This coordination can enhance the region’s ability to respond to economic shocks, thereby fostering a more resilient economic environment conducive to the broader goals of the AfCFTA.

Roadblocks to a single currency

The case of Eco for ECOWAS already demonstrates that implementing a single currency is not easy. A major challenge is the divergent political and economic structures. Already, Mali, Niger, and Burkina Faso have formed a new regional bloc known as the Alliance of Sahel States (or Alliance des États du Sahel, AES), which may further hamper the possibility of a single currency for free trade. Also, ECOWAS countries exhibit varying economic sizes and structures.

For instance, Nigeria accounts for about two-thirds of ECOWAS’s GDP, which could lead to asymmetrical impacts of a common monetary policy. Aligning these diverse economies under a single currency requires careful consideration to prevent economic disparities.

Meeting any set of convergence criteria is also challenging. ECOWAS has established convergence criteria, including maintaining a single-digit inflation rate and a fiscal deficit of no more than 4 percent of GDP. Historically, member countries have consistently struggled to meet these benchmarks, posing a significant hurdle to monetary unification.

Another challenge will likely arise from political will and sovereignty concerns. Adopting a single currency entails ceding a degree of national sovereignty over monetary policy. Countries may be reluctant to relinquish control, especially if there are concerns about the dominance of larger economies within the union. 

Lessons from the Eurozone highlight the complexities of such arrangements, even among countries with robust institutions. The political will is required to establish the necessary financial infrastructure and institutions, such as a regional central bank, which will further strengthen the credibility of the single currency.

What’s the way forward?

A phased and strategic approach is essential to harness the benefits of a single currency in unlocking AfCFTA’s potential in West Africa. This approach can begin with strengthening regional institutions. It includes establishing a credible regional central bank and financial regulatory bodies to oversee the implementation and stability of the single currency. The gradual approach will allow member countries to align their economic policies and achieve the necessary convergence criteria.

There is also the need for adequate capacity building and technical assistance programmes which can help member countries strengthen their fiscal and monetary frameworks, facilitating smoother integration into the single currency system. Such capacity building and technical assistance should also incorporate engagement with relevant stakeholders, including the private sector and civil society.

Doing so will ensure that the transition to a single currency is inclusive and addresses the concerns of various economic actors. Public awareness campaigns can also build support and understanding of the benefits and challenges associated with the single currency.

The success of the Eurozone demonstrates both the benefits and pitfalls of a monetary union. West African leaders must learn from these lessons, ensuring adequate economic safeguards are in place before full implementation. By eliminating currency exchange barriers, enhancing price transparency, and fostering monetary policy coordination, a single currency could substantially amplify the benefits of the AfCFTA in the region. 

However, addressing the economic, political, and institutional challenges is crucial for successfully adopting a single currency like the Eco. A deliberate, phased approach that prioritises institutional strengthening, economic convergence, and stakeholder engagement will ensure that a single currency fulfils its promise of driving sustainable economic growth and integration in West Africa.

Sami Tunji is a senior business correspondent at The PUNCH Newspaper and a Free Trade Fellow at Ominira Initiative.