General

It has been over a decade since the idea of having a common currency for the countries in the Economic Community of West African States (ECOWAS) was first proposed. The idea was that such a currency would have the following advantages: the benefits of economies of scale, free movement of goods & services, check of inflation, etc. A recent research paper has taken a deep dive into this topic, evaluating the pros and cons of implementing a single currency in the ECOWAS region. The paper concludes that, while there are some benefits to having a single currency, the disadvantages seem to outweigh them. In particular, the paper points out that the countries in the region are at very different stages of economic development, making it challenging to implement a single currency successfully. It is worth noting that, even if the countries in the ECOWAS region did decide to go ahead with a single currency, it would not be easy to implement. The paper estimates that it would take at least 10 years of preparation before such a currency could be introduced. Even then, there is no guarantee of success. Given all of these challenges, it seems unlikely that the countries in the region will be able to agree on and implement a single currency anytime soon. (Eregha, 2012) Bummer. The main objective of the Economic Community of West African States (ECOWAS) is to promote economic integration in the region. One of the critical elements of this integration is establishing a single currency, known as the Eco. The Eco was first proposed in 2000 but has yet to be implemented.  There are many reasons for this delay, including the global financial crisis, which hit the region hard; political instability in some member states; and resistance from Nigeria, the region’s largest economy. There is no doubt that a single currency would have many benefits for the region. It would promote trade and investment and make travelling easier for people within the region. It would also help to reduce inflation and stabilize prices. However, there are also some risks associated with Eco.  One of these is the fact that it would be controlled by a central bank, which would be located in Nigeria. This could lead to political interference in monetary policy and make it difficult for other member states to pursue independent economic policies. Another concern is that the Eco might not be strong enough to compete with other major currencies, such as the U.S. dollar or the Euro. This could lead to inflationary pressures and make it difficult for the Eco to be used internationally. Overall, both risks and benefits are associated with introducing the Eco. The decision on whether or not to go ahead with this project will ultimately be up to the member states of ECOWAS. However, it is essential to consider all of the implications before making a final decision. The 15 heads of state and governments of the Economic Community of West African States (ECOWAS) agreed to launch a new currency, the “Eco”, in January 2020.  In doing so, ostensibly, the leaders believe that business people and travellers will be freed from the hassles of exchanging currencies, intra-area trade will boom, and an integrated and prosperous region will flourish. However, there are significant risks associated with this project that could offset any potential benefits. For one, the Eco will be pegged to the Euro, which means it will inherit all of the euro’s volatility. (Zhambikov, 2020) This could create significant problems for countries with weak economic fundamentals, as they will be unable to use monetary policy to stabilize their economies.  Did I already mention that the Eco might be printed in France? I have to crosscheck this later. I’m about 30mins to my submission deadline. Moving on… Ultimately, the Eco’s success depends on West African leaders’ willingness to implement sound economic policies. If they are unwilling or unable to do so, the currency will likely fail if implemented. (Talabi, 2021) Is West Africa ready for a single currency? The 15-member Economic Community of West African States (ECOWAS) has been pursuing a common currency agenda centred on the “Eco,” intending to reduce barriers to doing business across the region and increasing trade overall. However, as I’ve previously mentioned, many experts are sceptical about the feasibility of such a project, given the region’s vast economic disparities and lack of fiscal and monetary union. They argue that a single currency would not only be challenging to implement but could also negatively affect the region’s economies. (Talabi, 2020) Supporters of the project counter that while there are challenges, a single currency would ultimately benefit West Africa by boosting trade and economic integration. They point to the success of other regional currency arrangements, such as the Eurozone, as evidence that the Eco can be successful. At present, it remains unclear whether the Eco will become a reality. However, the debate over its feasibility indicates the challenges and opportunities West Africa faces in its pursuit of economic integration. Prospective effects on trade The launch of the Eco currency by the Economic Community of West African States (ECOWAS) could have several different effects on trade within the region. On the one hand, the currency could make it easier for businesses to operate across borders, as they would no longer need to deal with different exchange rates. This could lead to an increase in trade, as businesses take advantage of the new opportunities created by the Eco. On the other hand, it is worth iterating that there is a risk that the currency could create economic problems for countries with weak economic fundamentals. This is because the Eco will be pegged to the Euro, which means it will inherit all of the Euro’s volatility. This could make it difficult for these countries to stabilize their economies through trade. (Nwali et al., 2022) The Eco’s success will ultimately depend on West African leaders’ willingness to implement sound economic policies. If they are unwilling or unable

The International Monetary Fund (IMF) was established to ensure global economic stability. This is done by providing financial assistance to countries facing economic difficulties. In recent years, the IMF has been involved in providing bailouts to several African countries that are struggling with their economies. The IMF bailout comes with certain conditions that some believe is the best solution for Africa’s economic challenges. Others, however, argue that IMF bailouts come with conditions that are often unrealistic and difficult to achieve, especially for economically struggling countries. Moreover, the IMF has been criticized for its involvement in Africa’s economic affairs, with some going as far as accusing the organisation of being responsible for Africa’s economic problems. On the 3rd of April 2019, I lauded the Ghanaian Government for taking an anti-aid stance and opting out of an IMF program back then. Three years later, we’re back at the IMF for a bailout. I know I know… COVID and the Russian-Ukrainian War and post-COVID (if we’re really at the ‘post’ side of COVID) and it’s a new world with new normals and the world is going through a brutal shift etc. but I still have to ask: Is the IMF bailout the best solution for Africa’s economic challenges? Are there alternatives we should be looking at, from a continental perspective? This is an opinion piece. Let’s view the following below as a brainstorming session; the answers of the world much less likely resides in one person’s head. Why do African countries resort to the IMF when the debt to GDP ratios reach a particular mark? It is no secret that many African countries are struggling with high debt levels. In fact, according to the World Bank, the average debt to GDP ratio for low-income countries was 52% in 2017, while it was even higher for middle-income countries at 58%. For some countries, the situation is even direr. So why do African countries resort to the IMF when the debt to GDP ratios reach a particular mark? There are several reasons. First, many African countries rely heavily on external financing. This means they borrow money from other countries or international organisations like the World Bank. As a result, these countries are more vulnerable to changes in global interest rates. For instance, when interest rates rise, it becomes more expensive for these countries to service their debt. This can lead to a debt spiral, where the country is forced to take out even more loans to pay off its existing debt. (“GHANA: IMF Bailout Sought”, 2014) Second, African countries often have weak domestic financial markets. This makes it difficult for them to raise money through bond issuance or other means. As a result, they rely more on external financing, which can be more expensive and difficult to obtain. Third, African countries often have low levels of reserves. This makes it difficult to weather economic shocks, such as a sudden drop in commodity prices. When these shocks occur, the country may need to turn to the IMF for financing. Fourth, many African countries have weak institutions. This makes it challenging to implement sound economic policies and enforce contracts. As a result, these countries are more likely to experience economic crises, which can increase debt levels. (“GHANA: No IMF Bailout”, 2018) Finally, African countries often have large populations. This means there is a greater need for social spending, such as education and health care. However, these can also put a strain on government finances. In summary, there are many reasons why African countries resort to the IMF when their debt to GDP ratios reach a particular mark. This is often because these countries rely heavily on external financing, have weak domestic financial markets, low levels of reserves, and weak institutions. (International Monetary Fund, 2006) As a result, they are more likely to experience economic shocks that can increase debt levels. How will an IMF bailout help to improve Africa’s economic conditions? The international financial crisis that began in 2007 quickly spread around the world, culminating in the collapse of Lehman Brothers in September 2008. This had a devastating effect on global economies, with Africa being particularly hard hit. In response, the G20 countries committed to providing $1.1 trillion to support the International Monetary Fund (IMF) and other international financial institutions. This was intended to help them provide emergency funding to countries affected by the crisis. However, it soon became apparent that this would not be enough to stabilize the global economy. In November 2008, at the G20 summit in Washington DC, it was agreed that a further $250 billion would be made available to the IMF. This money would be used to create a new facility, known as the Poverty Reduction and Growth Facility (PRGF). The PRGF was designed to help low-income countries (LICs) cope with the effects of the financial crisis. It provided them with access to cheap financing, which they could use to support their economies. In addition, the IMF committed to providing technical assistance and policy advice to LICs. (“AFRICA: World Bank Bailout Package”, 2009) The PRGF helped many LICs weather the storm in the immediate aftermath of the financial crisis. However, it did not address the underlying problems that had led to the crisis in the first place.  For this reason, the G20 countries agreed to provide a further $430 billion to the IMF in April 2009. This money was used to create a new facility known as the Flexible Credit Line (FCL). The FCL was designed to provide short-term financing to countries with sound economic policies. It was intended to help them deal with unexpected shocks, such as a sudden loss of export revenue. To be eligible for the FCL, countries had to meet strict criteria for their macroeconomic policies. So far, the FCL has been used by Mexico, Poland, and South Korea. All three countries have experienced significant economic challenges in recent years. However, they have managed to avoid a full-blown crisis thanks to the support of the FCL. While

Finance and Risk are two crucial issues in the world of business that cannot be over-emphasized. Finance is the heart and soul of any business; it plays an essential role from its establishment to its growth.  I’m tempted to define ‘finance’, though most of us have an idea of what one means at the mention of the word; Finance in business refers to the availability of cash or funds to meet the needs and demands of that business. Finance usually is pivotal, in most cases, to starting a business, expanding an already existing one, obtaining capital assets, developing new products, and running your business’s day-to-day operations, among many others. It is arguably the core of every business organization today. Inarguably, finance is an essential resource for businesses to develop, maintain and subsequently operate (Cassar, 2004). Finance is a critical factor that determines the growth of a business or company in many cases (Fielding et al., 2019). Risk, on the other hand, is a constant in every business, every business involves risks, and risk-taking is inherent in entrepreneurship and business. Risk connotes the chance of having an unexpected or adverse outcome (Chen & Kwak, 2017). In other words, the risk is the probability that some event will cause an undesirable outcome for your business. Any form of action or activity that results in a loss of any kind can be considered a risk to an enterprise or a business.  The various risks an enterprise or business can face are generally classified into business, non-business, and financial risks. These risks are a potential threat to every business but understanding their potential impact and how to manage or mitigate them, is important for a business’s success. Financial risk is one of the risks that businesses face most because it is integral to business operations and has a substantial impact on the day-to-day activities of most businesses, and therefore could potentially result in insolvency if not properly understood and managed.  Most start-ups and smaller businesses are likely to face financial risk the most as they enter the market and adapt to market and economic conditions.  There are five main types of financial risk, being, market risk, credit risk, operational risk, liquidity risk, and legal risk; liquidity risk being a major risk that affects almost all businesses. This means that business administrators (or managers) must evaluate the nature of finances available to them, analyse the potential risks and then calculate how such risks will impact the operations of the firm or business (Agyapong, 2020). Financial risks can arise from the improper management of cash flowing in and out of business. Financial risk can also arise from an administrator’s inability to properly manage the company’s debt or financial obligations, which can and will affect its growth and profitability, revenue generation or cash flow, and can impose a major obstacle in the company’s future, possibly resulting in its collapse. Some possible causes which are majorly responsible for creating financial risks for a business entity are as follows: •          The exposure to changes in the market prices, e.g. prices such as commodity costs, interest rates, inflation, and exchange rates. The volatile nature of one market may result in businesses and investors incurring losses.  •          It can arise from the actions or activities of and transactions with other enterprises, including customers, and vendors. •          Internal factors or failures within the enterprise with regards to employees, processes, and systems. Internal failures in aspects such as inefficient workforce management and lower productivity can also expose a business entity to financial risks. •          Unexpected competition that may arise from the entry of arrival firms (competitors) in the market can antecedent an adverse impact on the finance of a business.  •          Sudden changes in economic factors or government activities can expose business entities to financial risks. For instance, the government may introduce a policy or law (tax) that can introduce financial risk to many business enterprises. •          Seasonal issues relating to weather changes can also expose a business entity, especially those in the agricultural sector, to financial risks. Similarly, among the common types of financial risks businesses face include: •          Credit risk This refers to the chances of a business not fulfilling its debt obligation or failing to pay its creditors eg. bank, lender, or supplier. It can also result from giving credit to customers who also default on repayment.  •          Market risk This has to do with the probability of incurring a loss resulting from market volatility, upsurge in interest rates, cost of raw materials, and fluctuation in the exchange rate. Especially in developing countries, exchange rate depreciation tends to affect debt repayments and the competitiveness of their goods and services compared to those goods produced abroad. •          Liquidity risk This also manifests from the business’s ability to meet its short-term financial demands or needs to run the operation of the business. This may arise from cashflow constraints resulting from the decline in revenue, low sales, or an inefficient market. •          Operational risk This has to do with the possibility of loss resulting from the adverse effect of the policies, procedures, and systems the business entity has in place. Technical failure, fraudulent activity, and the inefficiency of workers are some examples of operational risks. •          Equity risk  This involves risks associated with the dealing of businesses or enterprises on the stock market. Poor stock market performance can be disastrous for a business that does not have the financial planning measures in place. •          Legal risk This is any financial losses that arises as a result of legal proceedings. •          Competition risk  This risk emanates from the current competitors of the business.   •          Technology risk This type of risk involves losses incurred from damages to operating systems, acquiring technological infrastructure costs, exposure to cyberattacks or data breaches, telecommunication and connectivity issues, and data integrity. Furthermore, financial stability is vital for a business entity to succeed, grow, and fulfil its social responsibilities. As a result, managing the risks that affect a business’s activities is important, and any staid business administrator or manager needs to guide their business against such financial risks. Wu et al.