UNDER THE DIRECTION OF Kako NUBUKPO, May 2021
Executive Summary
Fueled by the prospect of true monetary emancipation and an environment conducive to growth and employment, the ambition to build a monetary union in West Africa is a recurrent theme in the debates on the Economic Community of West African States (ECOWAS). However, various political and economic obstacles are interfering factors and/or blockages on the way to the establishment of an ECOWAS-wide currency.
On several occasions, weak political commitment, divergent economic priorities, lack of economic convergence, and developments in international currency markets have contributed to slowing progress towards a single currency in West Africa.
Despite this, the last few years have been marked by a constant search for deeper economic cooperation among member states to strengthen the political ties that bind them and thus move toward a single currency, namely the transition from the CFAF to the Eco.
Like any major reform, the introduction of the Eco has its advantages and disadvantages. Even though there are a number of grey areas and even hazards or risks associated with this unprecedented change, the various chapters of this report have also highlighted a number of important economic and financial advantages for the countries of the region.
ECO is expected to facilitate trade and finance, reduce the cost of financial transactions between countries, and enhance competition. All of this can only stimulate economic vitality and thus generate sustainable economic growth over time. This positive economic dynamism can only attract foreign investment, increase the economic competitiveness of its players in the global economy and this should have a far-reaching effect on the development of countries and societies in the region.
Indeed, the region’s monetary policy must be in line with the economic development policy of the countries and the region as a whole: this matching of the instrument (the currency) to the objective (inclusive and sustainable economic growth that produces real and tangible development for the people of West Africa) is indeed fundamental; it is the very basis of the ECO creation project, and it was the driving force behind this process.
A few priorities stand out as urgent. The first is employment, especially for young people and women, which it is high time to address with appropriate tools, including economic policies that encourage the process of industrialization, the return of the public sphere in its dimension of pilot of the general interest in the long term, the development of the private sector, companies and startups that exploit and transform the many natural and demographic resources of the region.
the region’s many natural and demographic resources.
The second emergency is sustainable and inclusive economic growth, based on ambitious and realistic sectoral choices and policies, which encourage industrialization based on the development of new technologies and in particular the digitization of processes and procedures, both in the public and private sectors. This brings us to the third emergency, the development of infrastructure, whether tangible or intangible, such as information and communication technologies. This is a regional transformation in which the Eco can and must play a central role.
The fourth emergency is the development of a competitive agriculture that can encourage the development of both resilient family farming and agribusiness that is commensurate with the region’s agricultural potential and that can guarantee food sovereignty for West African peoples. A recent report by the African Development Bank has highlighted the potential and consequences of agribusiness for the African continent and particularly for West Africa. This is why, among the economic sectors, agriculture is one of the most strategic for the region, particularly in relation to climate change, which creates new challenges to be met in terms of crop adaptation.
The fifth emergency, which summarizes and encompasses the others, is that of better regional integration of ECOWAS countries, based on real solidarity: while ECO cannot guarantee better regional integration of ECOWAS countries, it can nevertheless play a strong driving role, by facilitating genuine fiscal federalism, trade, and the movement of people, goods, services and capital.
In this perspective, four options – among others – are proposed to ECOWAS for the transition to the Eco:
Eco, a simple avatar of the CFA franc, bets on the gradual enlargement of WAEMU to include ECOWAS economies with the same profile as exporters of agricultural commodities. In this option, the centralization of foreign exchange reserves is fundamental, and is the main achievement of the history of the CFA franc. It presupposes and reflects a high degree of political solidarity among WAEMU member states, and this should not be forgotten in the event of the accession of new members.
Similarly, the question of the external guarantee, as exercised by France in the institutional context of the CFA franc, has a strong political dimension: it underpins the stability of the system in theory and in practice. If the principle of centralized reserves is retained, but their management is refocused in another institutional framework, monetary sovereignty passes from France to the WAEMU and then to ECOWAS.
The second option is that of a real Eco based on real convergence, that of GDP/head, and no longer, as in the case of the Eco-CFA, on compliance with nominal convergence criteria. In this scenario, ECOWAS economies would be obliged to converge towards the leading trio of Cape Verde, Nigeria and Ghana. The Eco would have a flexible exchange rate regime framed by inflation targeting. The convergence dynamic would then be quite different and WAEMU countries would lose their status as good convergence performers and therefore as tractors in the Eco implementation process. But is Nigeria, the real heavyweight of ECOWAS (70% of GDP and 52% of the population), ready to assume the role of locomotive of the Eco zone? Why would it agree to be the lender of last resort of ECOWAS and, above all, to abandon its currency, the Naira, in a current context marked by the use of money printing to resolve internal tensions in the Nigerian federation?
Third option, the Eco-Naira: in this case, we would return to the initial philosophy of the West African Monetary Zone (WAMZ), founded on April 20, 2000 in Accra (Ghana), when six countries in the region (Gambia, Ghana, Guinea, Liberia, Nigeria, Sierra Leone) announced their intention to create a second monetary zone in West Africa with the eco as its currency (alongside the CFA franc of the WAEMU). The plan was to merge this zone with WAEMU at a later date, so that the borders of the new union would coincide with those of ECOWAS.
But the Abuja Summit announcing the creation of Eco and the January 16, 2020 communiqué of the WAMZ Council of Ministers accusing WAEMU states of violating the spirit of the Eco currency following the Abidjan declaration have complicated matters. All this could lead to the creation of an « Eco-Naira », under the leadership of Nigeria, which has been stung by the Francophone initiative of an « Eco-CFA » that is on the way.
Fourth option, a common rather than a single eco-currency: while a single currency is necessarily a common currency, the reverse is not necessarily true. One could imagine that countries that are not yet in a position to join the single currency would link themselves to it through exchange rate agreements. The mechanisms for symmetrically reducing trade imbalances could help to recirculate surpluses within the ECOWAS zone, by encouraging specialization processes between economies, which are the basis for an increase in intra-zone trade. This in turn is one of the major economic and political objectives of the integration process.
In the end, this report argues for strengthening economic and monetary integration in the Economic Community of West African States. This requires good management of the macroeconomic fundamentals that are important for steering a common monetary policy that benefits all member countries of the union. The report argues that trade integration supports monetary integration, which suggests that a new dynamic should be given to intraregional trade through the elimination of trade barriers, the effective and rigorous application of community texts, and the mobilization of more investment in transport and telecommunications infrastructure. The Economic Community of West African States now has the advantage of relying on the Continental Free Trade Area of Africa (CFTAA) in this regard. The report also calls for the strengthening of financial integration in the zone in order to ensure maximum efficiency of risk sharing mechanisms.
