The Eco: a real test for West African vision and governance
Some commentators are only just realising that the CFA Franc is not compatible with the economic emergence of French-speaking Africa. The announcement on 21 December in Abidjan, Côte d’Ivoire of the imminent end of the CFA franc and its replacement by the Eco has certainly loosened up thinking.
Beyond the sniping from various finance ministers in the region, we need to find a positive regional narrative, carried by the political leaders of the zone, like the famous Casablanca group formed around Kwame Nkrumah and Nasser at the beginning of the 1960s.
“Populations are already integrated”
We already have everything needed to head towards federalism. The populations are already integrated, the West African Economic and Monetary Union (UEMOA) countries already collectively bargain their external commerce at the WTO, regional armies are being raised via the CEDEAO (Economic Community of West African States, ECOWAS) to intervene in Liberia and Sierra Leone.
Today, Chadian soldiers are dying in Mali in the fight against jihadists. From the moment where you accept to spill blood on behalf of a neighbour, you create the groundwork for a real federation.
“Confederation of UEMOA”
Why not investigate the idea of confederation of UEMOA, which would happen through the mutualisation of a certain number of services, including customs. The commission could finance a certain number of rights for the communities, such as the right for a student to sign up at any of the universities in the region, paying the same amount as their national fellow students.
Today, the budget of the UEMOA community is 0.3% of its GDP, a percentage that is three times less than that of the EU. Let us change the charter of the union to allow the commission to raise money on the regional bond market amounts alongside our own money, anchoring this borrowing on the exchange reserves that we hold in the French treasury.
“(Re)birth of the Eco”
Yet while it is important to continue putting pressure on the CFA franc, it is also essential to propose the possible outlines of the transition to the replacement currency, the Eco, whose (re)birth was announced on 29 June 2019 in Abuja (Nigeria) by the Summit of Heads of States and Governments of the Economic Community of West African States (ECOWAS).
In this regard, four options – among others – seem to be solid enough to unite the 15 member states invited to the Eco banquet:
1. The Eco, a simple avatar of the CFA franc, anticipates the progressive expansion of the West African Economic and Monetary Union (WAEMU) to include the economies of the ECOWAS with the same profile of exporters of agricultural raw materials as those of the WAEMU.
This is the model which seems to have inspired the Abidjan declarations of 21 December 2019, based on the respect of nominal convergence criteria and a strong affinity for a fixed exchange regime against the Euro. With this option, the centralisation of foreign reserves is fundamental, and it is the main outcome of the history of the CFA franc.
It assumes and conveys a high level of political solidarity between the WAEMU States and this must not be forgotten in the event of new members joining. Similarly, the question of the external guarantee, as performed by France in the institutional context of the CFA franc, has a strong political dimension: it ensures the system’s stability in theory and in practice.
If we keep the principle of centralising reserves, but by refocusing their management in another institutional framework, monetary sovereignty would go from France to WAEMU then to ECOWAS. There is also the question of parity: a lot of work was done on the subject a few years ago to propose a flexible or more easily adjusted exchange system, one based on an index calculated from a basket of currencies. The decision made in Abidjan to maintain a fixed exchange rate with the Euro as a transitional measure is the real sticking point between the followers of a flexible currency (Summit of ECOWAS Heads of States) and those of an Eco-CFA (Côte d’Ivoire and Senegal).
2. The second option is that of a Real-Eco based on real convergence, that of GNP per capita, and no longer on the respect of nominal convergence criteria as in the case of the Eco-CFA. In this case, ECOWAS economies would be obliged to converge to the top three made up of Cape Verde, Nigeria and Ghana. The Eco would have a flexible exchange regime regulated by an inflation targeting framework. The convergence dynamic would be quite different and WAEMU States would lose their status as ‘good convergence performers’ and therefore driving forces of the Eco’s implementation process.
But is Nigeria, the real heavyweight of ECOWAS (70% of the GNP and 52% of the population) ready to take on the role of “locomotive” in the Eco zone? Why would it agree to be the lender of last resort in ECOWAS, a role which it declined when the second monetary zone was established in West Africa (WAMZ) in 2002. More importantly, why would it abandon its currency the Naira, in the present context where internal tensions within the Nigerian federation are being resolved by money printing? We have already seen Buhari call for a postponement of the Eco.
3. Third option, the Eco-Naira: in this case, we would return to the original philosophy of the WAMZ. In fact, on 20 April 2000 in Accra (Ghana), six West African countries (Gambia, Ghana, Guinea, Liberia, Nigeria, Sierra Leone) announced their intention to create a second monetary zone in West Africa with the Eco as currency, alongside the WAEMU’s CFA franc. The project planned a future merger of this second monetary zone with the WAEMU, so that the borders of the monetary union would be those of the ECOWAS. In April 2002, the West African Monetary Zone (WAMZ) was established, and each country committed to maintaining its exchange rate within a 15% fluctuation range in relation to the dollar.
Following that decision, nothing happened until the ECOWAS Summit of 29 June 2019 in Abuja announcing the creation of the Eco in 2020 and the communiqué of the WAMZ Council of Ministers of 16th January 2020, accusing the States of WAEMU of violating the spirit of the Eco currency following the Abidjan declaration. All this could lead to the creation of an “Eco-Naira”, under the leadership of Nigeria, which was stung by the francophone initiative of an “Eco-CFA” now in the process of becoming a reality.
4. Fourth option, the common but non single Eco currency: While a single currency is not necessarily a common currency, the opposite is not always true. The history of the European Payments Union (EPU) between 1950 and 1957, prior to the Treaty of Rome establishing the European common market, illustrates the capacity for a “lighter” agreement than that of a single currency to contribute to strengthening the integration process between countries and thus prepare the conditions for the transition to more intense forms of integration.
In 1960, the Senegalese economist Daniel Cabou, who went on to become the first secretary general of CBWAS, suggested borrowing the European model and setting up an “African Payments Union”, an idea that was taken up again nine years later by the Egyptian economist Samir Amin in a report for Nigerian president Amany Diori.
Roadmap for the Eco
How can we reinterpret this model within a roadmap for the Eco?
By imagining that the countries that are not yet able to join the single currency, could affiliate themselves to it through exchange rate agreements.
Mechanisms of symmetrical reduction of trade imbalances could, using the same mechanisms initiated during the EPU, help put surpluses back into circulation within the ECOWAS zone, by encouraging the development of specializations between economies which is the key to increasing intra-zone trade.
Which is, in turn, one of the major economic and political goals of the integration process.