Dangote Refinery: Ghana Seeks Regional Currency Solution
Ghana Urges Single Currency for ECOWAS to Boost Regional Trade
“You will only put too much pressure on your currency...”
Ghana seeks to strengthen regional ties through ECOWAS single currency, easing Dangote refinery petroleum imports and reducing dollar dependence.
Ghana is advocating for a unified currency among Economic Community of West African States (ECOWAS) members to simplify trade, including purchasing petroleum from the Dangote refinery. This move aims to consolidate economic growth and enhance integration across West Africa.
Benefits of a Single Currency
Enhanced Trade: A single currency, called the “ECO,” will eliminate currency exchange barriers, significantly boosting intra-regional trade.
Price Stability and Transparency: With a unified currency, price comparisons across countries will become easier, potentially lowering consumer prices.
Reduced Transaction Costs: Removing the need for currency conversions will decrease costs for businesses and consumers, improving economic efficiency.
Challenges and Considerations
Loss of Monetary Policy Control: Adopting the ECO means member countries will cede individual control over monetary policies.
Response to Economic Shocks: The unified currency system might limit individual member countries' abilities to respond effectively to local and global economic shocks.
Fiscal Policy Limitations: ECOWAS may impose fiscal constraints, potentially hampering Nigeria's ability to deploy expansive fiscal policies during economic downturns.
By adopting a single currency, ECOWAS aims to foster economic integration and stability, but it's crucial to carefully navigate the challenges and considerations that come with it.
Mustapha Abdul-Hamid, Ghana's National Petroleum Authority Chairman, emphasized this during the Oil Trading and Logistics Africa Downstream Energy Week in Lagos, Nigeria.
According to Abdul-Hamid, Africa's reliance on the US dollar is straining local currencies, causing them to lose value. He noted that Ghana needs dollars to import fuel from Dangote, while Nigeria would require dollars for imports from Ghana, calling the situation illogical. This echoes concerns raised by experts about the feasibility of a West African currency union, citing significant economic disparities among ECOWAS member states.
A unified currency could improve regional trade and investment, enhance stability against external shocks, and promote economic integration. However, achieving this goal requires macroeconomic convergence and strong institutional frameworks among member countries. The ECOWAS has already made progress in trade integration through initiatives like the ECOWAS Trade Liberalization Scheme and the African Continental Free Trade Area (AfCFTA).
Benefits of a Unified Currency:
Improved Trade and Investment: A single currency would facilitate cross-border transactions, reducing reliance on the US dollar.
Enhanced Stability: A unified currency would provide a buffer against external economic shocks.
Increased Economic Integration: A single currency would promote economic cooperation and coordination among ECOWAS member states.
Challenges to Consider:
Macroeconomic Convergence: Member countries must achieve similar economic growth rates and inflation levels.
Institutional Frameworks: Strong regional institutions are necessary to regulate and govern a unified currency.
Economic Disparities: Significant differences in economic size, structure, and development among member countries pose challenges to integration.
Mustapha Abdul-Hamid, Chairman of Ghana's National Petroleum Authority, stresses the importance of collaboration and partnerships in the petroleum sector among ECOWAS member states, despite varying political interests. Aligning these interests is crucial for mutual benefit from each other's markets. Fortunately, the Africa Continental Free Trade Agreement (AfCFTA) facilitates intra-continental trade, including petroleum products.
However, a significant challenge persists - payments for imported petroleum products, such as those from Nigeria's Dangote refinery, are still made in US dollars. This highlights the need for a unified currency, like the proposed “Eco,” to simplify regional trade and reduce reliance on foreign currencies. The Eco, planned for introduction by the West African Monetary Zone (WAMZ), aims to boost economic development and cross-border trade in the region.
“If there is a petroleum shortage in Nigeria, then you would have to supplement with imports from the Gold Coast refinery in Accra; for example, you would also have to find dollars to still buy from Ghana.
“To an extent, that doesn't make a lot of sense to me.
“Therefore, we should move to a point whereby we actualise this goal of having a common currency for all of us.
“It is our demand for dollars to import petroleum products that put pressure on our various currencies.
“That drives petroleum product prices upwards.
“Now that Nigeria has a deregulated petroleum regime, for example, the major factor that is going to be responsible for driving up petroleum prices in Nigeria will be the currency, because importers would need more dollars to import petroleum products,” Abdul-Hamid stated.
Ghana faces a significant financial burden in importing petroleum products, requiring approximately $400 million monthly. This substantial expense underscores the need for alternative solutions, such as increasing domestic oil production or exploring regional partnerships, like importing from Nigeria's Dangote refinery, to reduce reliance on foreign exchange.
In fact, Ghana's oil imports are substantial, with the country spending five times more on oil and gas imports than it earns from exports. To put this into perspective, Ghana's oil exports averaged $285.56 million from 2021 to 2023, with main destinations including the United States, China, South Africa, India, and Thailand.
The country's energy requirements are primarily met through oil and natural gas, with the Ministry of Energy aiming to increase oil production to 500,000 barrels per day by 2024. However, Ghana still relies heavily on imports to meet its energy needs.
Adding that, “Now I can imagine how much Nigeria will need for the importation of its petroleum products.
“Where are the Nigerian petroleum importers going to find the dollars?
“You will only put too much pressure on your currency.”
Mustapha Abdul-Hamid advocates for robust governmental alliances, transcending inter-authority collaboration, to harmonize petroleum infrastructure, fiscal policies, and economic strategies across West African nations.
Abdul-Hamid expressed Ghana's interest in importing petroleum from Nigeria's Dangote refinery once it reaches 650,000 barrels per day (bpd) capacity. He noted that Nigeria's domestic demand cannot absorb the refinery's entire output, making regional export an attractive option.
Ghana seeks to capitalize on this opportunity, preferring to import refined petroleum products from Dangote rather than Rotterdam, Netherlands. This strategic move would strengthen regional trade ties, reduce reliance on international markets, and enhance energy security.
Ghana's National Petroleum Authority (NPA) chairman has announced measures to curb fuel smuggling from Nigeria into Ghana, calling on the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to create a dedicated security unit. This move aims to secure Ghana's fuel supply and prevent illegal trade.
Aliko Dangote, President of Dangote Refinery, is promoting domestic fuel sourcing, urging local marketers to procure petrol from his refinery instead of importing from abroad. With approximately 500 million liters in storage, Dangote Refinery can meet local demand. The Nigerian National Petroleum Company Limited (NNPCL) and other marketers are already seeking premium motor spirit from alternative sources.
Dangote's refinery has begun direct sales of Premium Motor Spirit (PMS) to select marketers, bypassing the Nigerian National Petroleum Company (NNPC). This strategic move aligns with Nigeria's policy changes, enabling marketers to source fuel directly from local refineries and reduce reliance on costly imports.
Benefits of Domestic Fuel Sourcing:
Reduced Reliance on Imports: Local refining meets domestic demand, decreasing reliance on foreign fuel sources.
Economic Growth: Domestic fuel sourcing stimulates economic growth by keeping revenue within Nigeria.
Increased Energy Security: Reliable fuel supply enhances energy security, reducing the impact of global market fluctuations.
By promoting domestic fuel sourcing, Dangote aims to stabilize Nigeria's fuel market, reduce imports, and enhance economic stability.
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