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Eco: So long a trip for West Africa’s proposed legal tender

By Geoff Iyatse, Gbenga Salau and Gbenga Akinfenwa
22 May 2022   |   2:48 am
Last year, heads of states of the Economic Community of West African States (ECOWAS) adopted a new roadmap towards achieving Eco with the launch date now scheduled for 2027.

Nevin<br />

Last year, heads of states of the Economic Community of West African States (ECOWAS) adopted a new roadmap towards achieving Eco with the launch date now scheduled for 2027. 

  
Eco, a common currency for ECOWAS was first planned for introduction in 2003, but for a cocktail of reasons, the launch date suffered several postponements to 2005, 2010, 2014, and 2020. 
  
Currently, the promoters have, thus, set a timeframe covering 2022 to 2026 for harmonising the monetary regimes that rule in the different countries that make up the sub-region.
  
But the historical challenges that have stalled the process in the past two decades are as valid and overwhelming in 2022 as they were in 2003 when it was originally planned to take off.
  
For instance, monetary convergence, the foundation stone of Eco, requires the French-speaking members of ECOWAS to untie their monetary framework from that of the former colonial master, France to enable a merger of CFA Franc and Eco. 

Indeed, in 2020, the Council of Ministers of the French Republic adopted a bill that would free the Central Bank of West African States (BCEAO), the central bank that is managing the currency of the eight countries of the West African Economic and Monetary Union that use the CFA franc from depositing half of its exchange reserves with the Public Treasury of France.
  
It would also disentangle France from all governing bodies of the Central Bank of West African States. With the bill, the French minister of finance, and the governor of the Bank of France would no longer participate in the biannual meetings of the Central Bank, one of which took place in Paris.
 
This was seen as a milestone in the search for monetary freedom by the former French colonies. But French imperialism still holds sway in West Africa, threatening the planned re-alignment of the sub-regional bloc, part of which is the introduction of a single currency.

  
In 2019, West African leaders seemed poised to achieve the process culminating in the launch in 2020, but that was scuttled by French President, Emmanuel Macron’s reported interference in the process among others.  

For the first time since the Africa-France began in 1973, Macron held the summit last year without inviting African heads but chose to hold talks with students, entrepreneurs, artists, and athletes, anchoring his discussion on “rebuilding” France-African relations in the light of growing anti-French sentiments in many Francophone countries on the continent. 

In Paris, Eco is seen as a symbol of the anti-French campaign, which it seeks to diffuse with a carrot-and-stick approach.
  
France’s opposition to a single currency that would remove its portrait from Africa majorly came to the fore in 2020. 

In June 2019, after multiple missed deadlines, ECOWAS announced that Eco would takeoff in 2020. But Macron pulled a surprise at a joint press briefing with President Alassane Ouattara of Ivory Coast same year (2019), by declaring that the eight French-speaking West African countries would rather retire the shared currency – (West African) CFA franc with one that he also referred to as Eco taking its place – a complete contradiction of the original plan expected to be implemented in six months.
  
Macron had promised to review France’s legacy in Africa and establish a new relationship with its former colonies. The promise, indeed, underestimated his intention. 

In May 2020, Paris kicked and started the official process leading to the replacement of the 77-year-old CFA franc with Eco, a French version of the ECOWAS initiative, meant to serve as the West African Economic and Monetary Union (WAEMU also known as UEMOA), founded by Senegal, Côte d’Ivoire, Burkina Faso, Mali, Benin, Togo, and Niger, as an arm of ECOWAS that advances the cause of the Francophone West African countries. 
  
France’s Council of Ministers passed a bill that ratified the reform of the monetary agreement that bound France to their former eight colonies in West Africa. The law was expected to bring to a close, about 75 years of rule in which the states had been compelled to deposit their foreign exchange reserves in the French Treasury, but pool their reserves within the BCEAO. But the imperialism was only being overseen through Eco, which will be pegged to the euro, and backed by the French Treasury. The euro will guarantee the Eco’s convertibility and stability, with the treasury remaining as guarantor for all eight WAEMU countries.

  
The CFA franc has been in use since 1945. It was created in the wake of the devaluation of the franc after World War II. Initially tied to the French franc, it has been pegged to the euro since its inception in 1999. The UEMOA wanted to create its independent currency, but it was only in July 2019, 25 years after its economic bloc was formed, that it announced its resolve to launch the Eco to the chagrin of other ECOWAS members.
  
The French Council of Ministers said its position on Eco would be that of a guarantor. “This new position enables us to support the WAEMU in its commitment to pursuing the single currency project of the Economic Community of West African States (ECOWAS),” it said in a statement.
  
For France, the creation of Eco and the resting of the CFA franc is a trust, and it shows its commitment to supporting the desire of its former colonies for a total economic and monetary independence. Neither Paris nor WAEMU members see any difference between the Eco being pegged to the euro, and the original concept the entire ECOWAS has pursued.
  
But the other members are suspicious of French last-minute involvement in the execution with some voicing their reservations about the euro connection. 

In January 2020, Nigeria and several West African countries, notably English-speaking ones, condemned the decision to replace the CFA franc with the Eco, saying that it was “not in conformity” with the single currency programme earlier adopted. 
  
Also, the Ghanaian government said it would only ditch its troubled cedi for the sub-regional currency if it was de-pegged from the euro. Ghana’s position came at a time when the Federal Ministry of Finance, Budget, and National Planning said it was studying the situation.   
  
Indeed, mutual suspicion is a major undermining factor. First, there is grumbling among the Anglophone countries that France’s overbearing posture would be affecting the commitment of its former colonies. 
  
On the other hand, their Francophone counterparts are not comfortable with the possibility of losing their fiscal and monetary sovereignty. With Nigeria controlling over 60 per cent of the economy and constituting about 50 per cent of the population of the sub-region, there are fears that the country could influence the adoption of monetary regimes that are compatible with smaller countries.
 

 
Until recent years, the naira dominated the sub-region as the currency of choice. The adoption of a single currency is also seen as an ultimate end to the sovereignty of the naira. In words, Nigeria has pledged its commitment to the aspiration, but that has not been matched with action, especially in providing leadership as expected of a de facto head. 
  
As far as PwC Nigeria Chief Economist, Andrew Nevin, is concerned about the desire to retain the control of the underpinning of the country’s lukewarmness. 
  
“I can’t see Nigeria agreeing to answer the Eco because, in effect, you would be losing your monetary sovereignty,” Nevin said. 

He added: “We should be asking fundamental questions, that is, whether it could make sense for the country’s economic structures. I do not think the case is really that strong when you look at the European Union, which has been having increased integration for decades and also has a common market, and then a regional currency. Having said that, if AfCTA is successful, we would see increasing economic integration in West Africa, especially among Anglo, Franco, and Portuguese-linked entities. 

  
Nevin continued: “I do not think that it is time to have a common currency, and I do not think that Nigeria with the largest economy should be in favour of a common currency,” the PwC chief submitted. 
   
However, the hasty introduction of the eNaira may have confirmed that the country does not see Eco as a priority, at least, not in the meantime. The digital currency adoption has sent a strong message to other members of ECOWAS on Nigeria’s level of commitment.
  
Analysts have suggested that the project sends a contradictory message about the country’s commitment, which is among the chief promoters of the sub-regional currency. 
  
The digital currency is being positioned as the route to cross-border trade, especially with the implementation of the AfCTA agreement – one of the key objectives of Eco.
  
In the next five years, member countries will also be faced with the tall responsibility of aligning their economies to achieve a single-digit inflation rate, a fiscal deficit of no more than four per cent of the GDP, central bank deficit-financing of no more than 10 per cent of the previous year’s tax revenues, and a tax to GDP ratio of at least 20 per cent. The current reality is miles away from these criteria as captured in the Eco Whitepaper.
  
ECOWAS is made up of WAEMU plus Cape Verde and the English-speaking bloc. WAEMU countries predominantly operate fixed exchange rates pegged to the euro, while the English-speaking countries have opted for a floating exchange rate regime. Hence, inflation among former colonies of French thus seems to converge at a relatively low rate. 
  
But Anglophone countries are faced with a different inflation trend – volatile, high and divergent from country to country. Currently, the inflation rate in Ghana is 23.6 per cent, while Nigeria’s inflation is 16.8 per cent, against Sierra Leone’s 17.9 per cent. Drivers of high inflation in the Anglophone bloc are different from country to country. Some the economies are bugged with supply and production capacity issues, while others are more challenged by demand and money supply factors. These make convergence, which is required for the effective takeoff of a common currency a challenge.   
  

Taking a look at the back and forth movement of the novel initiative, Dr. Ken Ife, an economist said: “A single currency is necessary, but not a sufficient condition for regional economic integration. It is the jewel in the crown when all the other stages are substantially completed. These are ECOWAS Free Trade Area; ECOWAS Common Market; ECOWAS Customs Union, and ECOWAS Monetary Union (single currency). 
  
“While none of the stages is substantially completed, and operational, progress has just been made by Afrexim Bank in launching the Pan African Payment and Settlement System (PAPSS). That will get trade underway and avoid the challenges of a third currency such as the United States dollars,” Ife said, adding that “the main challenges that have led to the successive postponement of the deadline has been the inability of the 15 ECOWAS member-states to achieve Macro-economic Convergence Criteria and to retain it for three years. Only Togo has met the criteria, and ECOWAS member-states are far apart, and at different stages of meeting the criteria. 
  
“The 10 ECOWAS Macro-economic Convergence Criteria include Inflation (single-digit inflation – Nigeria inflation is 15.6 per cent, while Benin is 0.8 per cent). Fiscal deficit to be less than 4 per cent of GDP – Nigeria is 3.99 per cent, while Ghana is 7 per cent. Central Bank Financing should be less than 10 per cent of the previous year’s tax revenue.

CBN’s overdraft to the government is about N15t. External Reserves to cover three months of import – Nigeria’s reserve is $40b to cover 12 months of import. Prohibition of domestic default and liquidation of existing ones; tax revenue to be greater than 20 per cent of GDP – Nigeria is 6 – 7 per cent of GDP compared to an average of 18 per cent. The wage bill to tax revenue should be less than 35 per cent. Public investment in tax revenue should be higher than 20 per cent. There should also be a stable, real exchange rate, as well as positive real interest rate,” the economist submitted.

He added that: “There is no doubt that the current security crisis, debt crisis, high inflation, high energy costs, high food costs, and COVID-19-induced recession have widened the convergence gap making the new 2027 date already look tight.”
  
And for the Chief Executive Officer (CEO) of Global Analytics, Dr. Tope Fasua, as the hues and cries regarding the common currency are concerned, “I think the first question to ask ourselves is if the whole thing has not been overtaken by events, because now, people are talking about digital currency, cryptocurrency, and others. This has been in the bank for too long to the extent that a few years back, the France President, Micron tried to work with the President of Cote D’Ivoire to change the name of CFA, which is the currency of 14 countries in Africa to Eco, which was the name that had been pencilled down for the ECOWAS currency. But now, Nigeria has also evolved the eNaira, which is a pioneer in its class in Africa. In fact, it is the best performing in the world. So, will Nigeria ditch its eNaira for a ‘dumped’ traditional Eco?

  
He continued: “Nigeria has moved on and Ghana is following suit, the euro, dollars, and pounds are also thinking of digital currencies. Digital currency is a game-changer because ultimately it should possess the ability to be converted to any currency in the world, without any need to pass through any commercial bank. In other words, the transaction is a central bank to central bank transaction.”
  
Fasua said that one of the major reasons for the long delay is the inability of member-states to get their economies to look alike in terms of inflation, and terms of the budget deficit. “As a matter of fact, I think it is the only Benin Republic or Togo that has been able to confirm, Nigeria is way off in terms of convergence, Nigeria’s inflation is still struggling around 15 per cent, and our budget deficit to GDP ratio has been growing as well, even though it’s a bit low because our GDP is large. But I think that it’s large for nothing. So, I think that we should be thinking about the eNaira, the discussion on Eco is kind of muted for now; it’s like a forgotten issue.
  
“What is happening is that they are basically just kicking the can down the road. Digital currencies are the real thing now. Only recently, a report came out that soon, the USSD, DSTV, and some travel expenses, or so would be payable with eNaira. If Nigeria continues to advance with her digital currency, we will not need a traditional eco currency anymore,” he submitted.