Economic Community of West African State’s (ECOWAS) Controversy: Wither a Need for Single Currency by 2021?

Abstract

The business cycles in the West African Monetary Zone (WAMZ) as well as West African Economic and Monetary Union (WAEMU) using real GDP growth within 1980-2019, detrended by Hodrick–Prescott filters were analyzed. The Pearson correlation analysis on the computed z-scores was employed to examine the level of synchronization of business cycles, the level of symmetry in macroeconomic policies and the level of symmetry in trade flows. It was evident that business cycles synchronization was on the whole increasing, but with higher intensity within WAEMU region than within WAMZ region where only Ghana-Guinea, Ghana-Nigeria, Guinea-Gambia as well as Guinea-Nigeria as pairs were significantly synchronized. Symmetry in macroeconomic policies was on the whole minimal within ECOWAS region. The flow of trade however within ECOWAS region was asymmetric between Cote d’Ivoire and other WAEMU countries and between Nigeria and other WAMZ countries, but was symmetric between other ECOWAS countries, indicating that these economies rely more on transaction with other developed economies. The empirical results provided a direction for countries with synchronized business cycles such as Ghana, Guinea, Gambia and Nigeria to consider proceeding in the creation of the second West African monetary union (SWAMU) while also creating an enabling environment for other countries within WAMZ to join in due course. The study recommended among others that any country under WAEMU without strong similarities with other countries as pairs should disengage from WAEMU. On the converse, countries with strong similarities as pairs should unilaterally realign their exchange rate.