S&P: Creating eco currency will be challenging & lengthy after withdrawals

S&P Global Ratings believes that the creation of the proposed common currency for West African countries, known as the eco, will be a challenging and lengthy process. The ratings firm points out that the uncertainty surrounding the eco has increased since Niger, Mali, and Burkina Faso initiated the withdrawal process in January. Ravi Bhatia, Director and Lead Analyst at S&P Global Ratings, shed light on the challenges and prospects ahead during an interview with CNBC Africa. Bhatia highlighted several key points regarding the obstacles faced by the region in achieving the eco. First and foremost, the diversity of the West African countries poses a significant hurdle to economic integration necessary for a common currency. The linguistic differences between French-speaking and English-speaking nations, as well as the dominance of larger countries like Nigeria, further complicates the path to implementing the eco. Additionally, the existence of the WAMU currency union, predominantly used by French-speaking countries, signifies a transition challenge towards adopting the eco. Bhatia also pointed out the political tensions within ECOWAS, especially with the recent shift to military governments in Burkina Faso, Mali, and Niger, leading to strained relations within the region. Despite these challenges, the region continues to forge ahead in pursuit of the common currency. The 64th Ordinary Meeting of ECOWAS governors discussed drafting an institutional and legal framework for the eco, demonstrating a commitment to the project. Bhatia emphasized the importance of increased trade integration within Africa, highlighting the need for a common currency to reduce trade barriers and promote intra-regional commerce. While acknowledging the success of the current CFA franc system in maintaining stability within the region, Bhatia expressed optimism about the potential benefits of a broader common currency like the eco. The ongoing political turmoil resulting from the withdrawal threats of Burkina Faso, Mali, and Niger adds another layer of complexity to achieving regional integration under the eco. Senegal and other key players are working towards reconciliation to prevent further exits from ECOWAS, underscoring the importance of political stability for the success of the common currency. As the region navigates these challenges, Nigeria's economic outlook also came into focus during the interview. Bhatia commended Nigeria's recent reforms, including the liberalization of the exchange rate and removal of fuel subsidies, aimed at driving economic growth and development. However, he noted that the adjustment to these reforms has led to high inflation in recent months, necessitating further policy adjustments to stabilize the economy. Despite the mixed progress, S&P Global Ratings maintained Nigeria's rating at B minus with a stable outlook, reflecting both the positive reforms and the ongoing need for additional measures to address economic challenges. In conclusion, the road to implementing the eco currency in West Africa is fraught with obstacles, ranging from economic and political complexities to regional tensions and reform necessities. While the aspiration for a common currency remains strong, the region must overcome these challenges collaboratively to realize the potential benefits of enhanced trade integration and economic cooperation.