On September 7th 2021, El Salvador became the first country in the world to adopt Bitcoin as legal tender. This ushered a new age where many countries with developing economies are considering the same, or similar routes. The reasons for this shift in public policy range from reduced international transfer fees to increased economic autonomy. That being said, this approach also comes with certain risks that the people of the countries adopting digital currencies should be educated about. We will be discussing those risks in another article.
Author: Senan Mele
Senan has a dual Concentration MBA in Financial Management and Management Information Systems from Pace University. He has an interest for African economy as a whole and enjoys using data to learn the story behind economic and social similarities and differences among all 54 African countries.
The value of a country’s currency determines its level of economic success and the confidence of investors in its economy. To have a strong currency, a country needs to produce goods and services that other countries need and are willing to purchase using the seller country’s currency. Countries also need to deliver a high interest rate on investments so that foreign investors are interested in the country’s financial and economic opportunities. Finally, countries need to have a stable government and sound economic policies. With the British Pound, the Euro and the dollar being the stronger currencies in the world, let’s take a look at the top 5 currencies in Africa.
Free trade areas have always been the one of the paths that countries take to develop faster. The European Union, for example, has made it easier for many European countries trading among each other. This has in turn contributed to a higher growth rate in the past 4 decades, resulting in a more developed and integrated Europe. The talk of a similar framework in Africa has always dominated the mainstream media and geopolitics of the continent. Such a framework appeared under the form of the Africa Continental Free Trade Area (AfCFTA).
The integration of regional economic communities in Africa was at the very core of forming the Organization of African Unity in 1963. The organization, after its formation, looked at ways in which they can help Africa become more economically integrated. A lot of African countries were still fighting for independence, while only a few had achieved it. This made it close to impossible to realize their goal.
In June 2019, the 15 member states of the Economic Community of West African States (ECOWAS) indicated they will move forward with the single currency plan across the Western African region. This idea, born more than 30 years ago, is now on the fast-track to implementation. ECOWAS member states intend to put the currency in use as early as 2020.
ECOWAS is a regional economic group binding together 15 West African countries. One of its main goals is to ensure the smooth and free movement of goods, services and member States citizens within the bloc and to improve economic integration. As such, one would expect a significantly higher intra-regional trade volume compared to trade with rest of the world. This is however not the case. Even though it is on the increase direction-ally, it is still significantly lower than merchandise trade with high income economies. In fact, Intra-African trade is the lowest compared to intra-regional trade in other continents.
In the world of Finance and business, investment diversification is a way to ensure long term growth with minimal risks. This is because gains from profitable products offsets losses incurred by non-profitable ones. Even though the same concept applies to a country’s economy, governments find it difficult to follow this well-known rule of the Finance world. This is the case for some of the member States in ECOWAS, which tend to rely mostly on the sale of one particular product when it comes to merchandise export.
Nigeria has long been one of the largest economies in Africa. As of 2016, it was well ahead of Egypt and South Africa. Nigeria’s GDP in the ECOWAS regional group is significantly larger than that of all the other member States combined. With its substantial weight, the country is in a unique position to set the course of ECOWAS in particular, and Africa in general for years to come.