ECO: Designed for integration, dogged by mutual suspicion
The announcement of the takeoff of ECOWAS Currency, ECO, would have inspired mutual applause and unreserved general commendations. This is because, among other reasons, it was scripted to facilitate sub-regional integration through trade and diplomacy. But it was not to be.
The sub-regional initiative includes Nigeria, the most coveted territory on the continent, Benin Republic, Burkina Faso, Cape Verde, The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Niger, Senegal, Sierra Leone, and Togo.
ECOWAS leadership had been billed to work with the West African Monetary Agency (WAMA), the West Africa Monetary Institute (WAMI) and central banks in facilitating the birth of the single trade currency.
ECO is an initiative of the Economic Community of West African States (ECOWAS), led by its leaders, in efforts to enthrone a regime of common currency among member-states.
At a summit in Abuja, the 15-member group, met on June 29, 2019, and formally adopted the name “ECO.” The idea of a common currency for the sub-region was first mooted nearly 30 years ago, for the purpose of boosting intra-regional trade and economic development.
By the implementation of ECO, member countries’ citizens would move freely, trade and spend the currency among the nations without exchange rate challenges, as well as aid the much-sought integration of the economies.
There were convergent criteria for the member countries, while those that met the rules would start earlier. Besides, ECO would ride on a flexible exchange rate regime, coupled with a monetary policy framework focused on inflation targeting.
The members were to pursue appropriate policies and reform programmes that would enable, grow and sustain economic growth and the structural changes. Since then, while few of the member-countries met the criteria, they have also lost the conditions as their respective economies swing as a result of domestic and global shocks.
Of the more than one billion population of the continent, these economies aggregate a population of about 385 million, and that of Nigeria alone is currently estimated to be about 200 million, perhaps the target market.
These countries have varying colonial interests and heritage; they are at the disproportionate level of development, and productive capacity. The market size is also far from par. Their bilateral affiliations outside the continent also pose another disuniting factor.
The Issues And Intrigues
INDEED, the ECO is currently at a crossroads with differing economies that it targets to integrate. More worrisome is the “upper-hand” that France appears to aggrandise in the whole process, and the swiftness of the country’s strategic positioning in the implementation of the common currency, irrespective of mixed colonial interests and loyalty.
Arguments have rent the air over the viability, possible gains, and losses, as well as emerging political intrigues, with international dimension.
While the majority have no objection over the ideas behind the initiative, the targeted goals and objectives, the bare-face realities continue to raise more questions.
For example, the sub-region is dominated by one country- Nigeria, in both population and economic output. Nigeria also has one of the highest inflation rates at double digits, against the prescribed four per cent.
Still, the controversy over the presence of France at the centre of the ECO discourse is now more intriguing than economic support and charting a path for the sub-regions survival. It is tending towards mutual suspicion and may, in reality, be dangerous.
“I’m not certain about France having the upper hand. I think it is simply a politically expedient thing for the Francophone West African leaders to do and they have followed it through.
“It is no longer that strategically important to France as President Emmanuel Macron has hinted many times. The reserves held is circa $5b and it is not a large amount in the grander scale of French things,” a senior analyst at SBM Intel, Tunde Ajileye, said.
But what if the move generates more reserves for France, if successful?
“The main concern is that Francophone countries seem to be sacrificing the currency stability for the political results this move gives. And while those political reasons are understandable, it does not make the currency stability issue less important.
“For Nigeria, it opens up an opportunity to influence West Africa in terms of trade further. Nigeria must ensure that before it joins any monetary union, its trade imperatives are obtained at the negotiation table,” he said.
Of the 15-member nations, the Francophones are seven, but converted one country- Guinea-Bissau, by its acceptance and adoption of Franc CFA. The remaining seven are Anglophones. The France-backed CFA has an agreed benchmark against the Euro, the single currency for European Union. France and Germany are the lead negotiators of the raging Britain Exit, popularly called Brexit. What could that purport to be?
Ajileye said there is no serious nexus between the two issues- ECO and Brexit, beyond the fact that both are driven by political headwinds, while their economic implications and implementation are not fully thought through.
But the new move by France looks like a subtle push for the long-standing Economic Partnership Agreement (EPA) to sail through, as most, if not all the ECOWAS members, have accepted the deal, except Nigeria. Perhaps, another way of swaying interest for European Union and gathering more trade partners after Brexit.
The new ECO, apart from being a new name, marked the end of holding 50 per cent of the reserves in the French Treasury and the withdrawal of French governance in any aspect related to the currency.
This means that the Anglophone economies among the ECOWAS bloc that would subscribe to the France-backed ECO, would maintain reserves in French Treasury.
ECOWAS has been pursuing its own ECO without reaching a deal on several issues, particularly the establishment of a Customs Union, thus giving France an opportunity for a double-deal in backing the renaming of its Franc CFA to the same ECO.
The African Development Bank Group (AfDB) had earlier raised concerns over the feasibility of debuting the ECO this year, after member-countries reached a deal on the name of the currency in 2019, citing challenges in the alignment of monetary and fiscal policies of the respective economies. Could that have been the French toast?
“First thing to note is that this ECO that the CFA Franc has renamed is different from the ECO that ECOWAS had been trying to put together. The ECOWAS’ ECO was meant to include all member countries in the monetary union after certain conditions had been met, akin to the EU’s Euro.
“The Franc ECO is a renaming of the previous CFA Franc, with some of the conditions surrounding it, such as holding reserves in France and having French representation on the regional central bank of the Francophone West African countries removed.
“It remains to be seen if any of the Anglophone West African countries will join after Ghana and Nigeria have indicated that they are still studying the situation and will not join immediately. Ultimately, the France ECO may evolve into the ECOWAS ECO, but that is not yet the case,” Ajileye noted.
…And More Controversies
ACCORDING to a report by Quartz Africa, a commonly held view as to why the policy is being contemplated is that governments in the region are keen on even more integration, in addition to existing visa-free travel. “But just as it has been for much of the past two decades, there are currently too many stumbling blocks on the way.
“For starters, only five (Cape Verde, Ivory Coast, Guinea, Senegal, and Togo) of the region’s 15 countries currently meet the single currency’s criteria of a budget deficit no higher than four per cent and inflation rates of not more than five per cent.
“And while ECOWAS says the integration will be gradual as countries meet the criteria, it’s unlikely that a 2020 launch date is feasible at all. Even though the date has been set, there is no significant progress as regards the design, production, and testing of the currency notes.
“You’ve got very different levels of debt, interest rates, and budget deficits. Trying to align these countries to operate as one is extremely difficult. What currency policy will be right for two such divergent countries like Ghana and Burkina Faso?” the Chief Global Economist at Renaissance Capital, Charlie Robertson, queries.
Kémi Séba, the controversial Franco-Béninois activist, who spearheaded a movement against the regional currency, said the fact that Macron and the President of Côte d’Ivoire, Alassane Ouattara, announced the end of the West African CFA is a further conviction that France’s “neo-colonialism” is alive and well.
“Macron shouldn’t be the one to say our CFA is finished. They are not respecting us. They are acting unilaterally and overriding regional bodies such as the Economic Community of West African States in its decision,” he said.
Séba argued that France has used the currency to undermine national sovereignty by controlling and manipulating African economies for its own advantage.
While plans for a new regional currency has been announced, it remains unclear how the new currency will be rolled out, although reports claim reserves of the new currency will remain in West Africa at the Central Bank of West African States.
But it’s bizarre that countries, who use the French-backed currency will even consider revising their currency policy at all, given the benefits of lower interest rates and currency stability, all in the search for more economies to expand the network.
“What has been driving growth and investment in Cote d’Ivoire and Senegal in the last 10 years has been high investment because of low-interest rates, which come from a stable currency guaranteed by France. Why jeopardise that and align with countries with less stable currencies like Nigeria and Ghana, and with much higher levels of inflation and interest rates?” Robertson retorts.
The CFA Franc’s value was moored to the euro after its introduction two decades ago, at a fixed rate of 655.96 CFA francs to one euro. The Bank of France holds half of the currency’s total reserves, but France does not make money on its deposits stewardship, annually paying a ceiling interest rate of 0.75 per cent to member states.
The arrangement guarantees unlimited convertibility of CFA francs into euros and facilitates inter-zone transfers, while the CFA notes and coins are printed and minted at a Bank of France facility in the southern town of Chamalieres.
However, a Cameroonian economist, Martial Ze Belinga, a told DW, an online newspaper: “In a way, we now have two ECOs. One that the 15 African countries voted for, and whose name was already decided in 2003. And today there is a new ECO, which France and the West African Economic and Monetary Union (WAEMU) countries have chosen independently of the others. This seems astonishing. One could at least have waited for them to give their approval.”
In an economist’s view, it does not make sense to promote West African monetary integration without involving countries like Ghana or Nigeria.
“A country that accounts for over half of the population in the region cannot be left out. ECOWAS must, therefore, react very quickly. Otherwise its own project, the currency unit, will get into difficulties and it will lose credibility as an organisation.”
In a Bloomberg analysis, it is an ambitious plan to adopt a common currency for 15 West African countries and would become more difficult to implement once France’s former colonies in the region follow through on an announcement to reform their single payment unit.
At the heart of the matter is whether the single currency for the ECOWAS should be free-floating or have a fixed value. Another consideration is France’s continued role to back up the payment unit.
That France will guarantee the new currency’s peg to the euro as it did for the CFA franc, means at the moment that there’s little chance that Nigeria and Ghana, the two biggest economies in ECOWAS will join in.
“The French involvement wouldn’t be tolerated by Anglophone countries. Conversely, France would be unable to ‘guarantee’ the exchange rate should a juggernaut like Nigeria join the club,” the Vice President at Teneo Intelligence, Malte Liewerscheidt, said.
Bank of Ghana’s Governor, Ernest Addison, had said that lingering issues around the adoption ECO would take time to resolve, irrespective of the commitment to the initiative.
“Although the government of Ghana is committed to do all it can to join the West African common currency arrangement, there are many unresolved issues regarding the common currency,” he said.
Government, Experts’ Take
LIKE Ghana, Nigeria responded to the announcement of the launch of France-backed ECO with commendations but added that it would not join immediately until it concludes its study on the currency plan.
Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, admitted that more work still needs to be done individually to meet the convergence criteria, as part of ways to move on with ECO.
Also calling for a cautious approach, the spokesperson to the Federal Ministry of Finance, Budget and National Planning, Yunusa Abdullahi, admitted that since the country received the news of the change of name of the UEMOA currency, the CFA (Communaute Financiere d’Aafrique) to ECO, supposedly as the ECOWAS single currency. “Nigeria is studying the situation and would respond in due course.”
The nation’s currency dealers, under the aegis of the Association of Bureaux De Change Operators of Nigeria (ABCON), also voiced concerns over the seeming direct involvement of France in the sub-regions currency project, advising the government to be wary of the move.
ABCON National President, Dr. Aminu Gwadabe, warned that Nigeria should critically examine the role of France in the currency project before any decision to participate.
“Nigeria must not adopt the currency with France or Euro as the background promoters to avoid enslaving West Africa economically.
“If the prime objective to facilitate cross-border trade and economic development of the member states is still to be achieved, the structure of the system must be built on fundamentals in the sub-region to compete with other economic blocs.
“Government is encouraged to pursue the project with sincerity of purpose based on sound policies devoid of interference from any economic bloc.
“The Central Bank of the sub-region should be independent to invest the reserves in any world currency to satisfy the interest of constituent states,” he said.
Meanwhile, more cautious notes have been coming from experts and stakeholders, who described the launch led by Francophone countries as “outsmarting” and huge joke, said conditions are not yet ripe for the implementation of a single currency for the sub-region, not even in the next two years.
For some of the experts, Nigeria must not be in a rush (a position was already taken by government), adding that signing into the scheme amounts to surrendering her fiscal and monetary sovereignty, including her foreign reserves, which that are more than 60 per cent of the entire sub-regions central banks’ reserves.
The Executive Chairman of the Society for Analytical Economics, Prof. Godwin Owoh, told The Guardian there were indications that the basic requirements for the convergence of the sub-regions currencies-audit and verification of the various ECOWAS central banks’ accounts have not happened.
“I know for a fact that even Nigeria that is the leading stakeholders in this project has not had its CBN accounts audited and verified in the past four years. And it takes a minimum of two years to achieve this.
“So I don’t see any magic happening with the ECO implementation this year. How do you converge when you don’t know your individual countries’ balance?
“The attempt to have a common currency has been on before the year 2000 and it has suffered multiple postponements because members have consistently failed to meet the convergent criteria, with Nigeria always leading in the breach,” he said.
For Ade Femi, analyst, the move is suspicious, as Nigeria was practically not allowed into the France-backed ECO scheme due to its resistance to EPA, adding that the move is to frustrate transactions in the country’s product offerings in the sub-region, which accounts for two-thirds of total output.
“I think it is a politically expedient thing for France to take advantage of the delays among ECOWAS countries, as evidenced in several postponements of ECO launch, especially using Francophone West African leaders to achieve whatever aim they have, whether for Brexit concerns, or economic interests.
“The truth is that anything in West Africa that excludes Nigeria will end in the struggle, because the market and output are here, despite seeming economic issues. On the other hand, if Nigeria does not handle ‘hazy’ schemes appropriately, its fingers would be burnt. For me, this move appears to have something similar to AfCFTA,” the analyst noted.
For example, Guinea’s Gross Domestic Product, estimated at about $7b was less than one of Nigeria’s mid-size states- Abia, which is estimated at more than $8b. Invariably, Nigeria’s major cities like Lagos, Kano, Port Harcourt Rivers, have bigger economies than some ECOWAS countries.
Generally, fixing underlying structural issues, which hobble trade, including inadequate supply chain infrastructure, arbitrary border tariffs and non-tariff barriers, abysmal corruption and wide-area insecurity” are all more viable solutions for boosting intra-bloc trade.
Also, a development economist, Odilim Enwegbara, said Nigeria’s signing into the scheme as it is presently, is subjugating its economic independence to France, even as there are already such dissenting voices even among the Francophone countries.
“Will Nigeria surrender its naira to the ECO that has most of its monetary policy measures taken in both Munich and Paris?
“First, Nigeria cannot surrender its currency, which means surrendering its sovereignty, without first having to amend its Constitution to accommodate that.
“Second, this will also require harmonising the country’s banking and financial legislation to match the ECO common currency realities. Given Nigeria’s peculiar economic and financial situation, which is far ahead of all the other ECO member-states, these inevitable changes will definitely be easier said than done.
“Given that West African countries are dependent on commodities imports from the euro-zone, the fact that the prices of these commodities are internationally regulated and externally controlled, further subjects ECO money supply, interest rates, and exchange rates to be dependent on euro.
“So, every diversification effort in ECO-zone economies will be undermined by euro monetary policymakers, whose only interest remains to use the monetary policy to indirectly keep ECO-zone economies as exporters of raw materials in euro, especially because most of the imports from the same eco-zone economies will have to officially pass through euro,” he said.