Is the road clear for Eco?

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Is the road clear for Eco?

THE Economic Community of West African States (ECOWAS), on June 29, announced the adoption of “Eco” as its monetary currency and January 2020 as tentative date for its take-off. To many economic analysts, the CFA franc used in two African monetary zones – one for eight West African countries and the other for six, mostly petro-states, in Central Africa – was seen as a major hurdle against the implementation of the regional currency initiative.

But on Saturday, Ivory Coast’s President Alassane Ouattara said the West African bloc inched closer to a split from French-backed CFA franc currency. He said the West African Economic and Monetary Union has agreed with France to several changes to the CFA franc currency, including a new name. The monetary union will keep its euro peg while moving its currency reserve from France, the former colonial power. Ouattara told reporters during a two-day visit by French President Emmanuel Macron that France would no longer have a representative on the board of the central bank.

“This decision shows our determination to create an integrated and dynamic regional market, a source of prosperity for us and for future generations,” Ouattara said.

The decision constitutes a key step in the long-standing hurdles between the West African Economic and Monetary Union and France. For the countries that have used the CFA franc since independence almost 60 years ago, the changes marked a significant shift.

The Ivorian leader also flew to  Abuja same day, where he briefed a meeting of presidents of member-states of ECOWAS on the agreement with France. President Muhammadu Buhari welcomed Macron’s decision not to oppose the creation of the new regional currency.

Benin’s President Patrice Talon last month called for on West Africa’s Francophone countries to move some reserves from France to have more control over the management of their currency. “Psychologically, with regards to the vision of sovereignty and managing your own money, it’s not good that this model continues,” Talon said.

Moving closer to the dream of integration

The Authority of ECOWAS Heads of State and Government, at their meeting in Abuja, on June 29, moved closer to the dream of integration as espoused by the organisation’s founding fathers. The leaders, in a communiqué read by Nigeria’s Permanent Secretary, Ministry of Foreign Affairs, Mr. Mustapha Suleiman, at their 55th Ordinary Session, adopted Eco as the name of the sub-region’s single currency to be issued in January. It came after the implementation of the single currency was postponed several times since 2003. They instructed the ECOWAS Commission to work in collaboration with West African Monetary Agency, West African Monetary Institute (WAMI) and member-states’ central banks to accelerate the implementation of the revised roadmap on the symbol of the single currency.

The communique directed the commission to ensure implementation of the recommendations of the meeting of the ministerial committee held in Abidjan on June 17 and June 18 as well as preparation and implementation of the Communication Strategy for the single currency programme. “The Authority takes note of the 2018 macroeconomic convergence report. It noted the worsening of the macroeconomic convergence and urged member states to do more to improve on their performance in view of the imminent deadline,” it added.

A crawling baby

The goal of ECOWAS leaders is to merge the new currency with the West African CFA franc – a currency used by the French-speaking members of ECOWAS since 1945. The common currency was proposed to be introduced in the West African Monetary Zone(WAMZ) countries – The Gambia, Ghana, Guinea-Conakry (a French-speaking which does not use the CFA franc), Liberia, Nigeria and Sierra Leone. It will then flow into the whole of ECOWAS countries. The Eco was first planned to be introduced in 2003, but this was postponed several times – to 2005, 2010 and then 2014.

At a meeting of the Convergence Council of Ministers and Governors of West Africa on May 25, 2009, the start of the currency was rescheduled to 2015 due to international economic crisis. The December 2009 meeting also established a plan to begin work to merge the ECO with the CFA Franc immediately upon the launch of the Eco. This was planned to be achieved by next month.

In 2001, WAMI was set up with headquarters in Accra, Ghana. It is to be an interim organisation in preparation for the future West African Central Bank. Its function and organisation are inspired by the European Monetary Institute. Thus, WAMI is to provide a framework for central banks in the WAMZ to start the integration and begin preliminary preparations for the printing and minting of the physical money.

Can the revived dream fly?

Loft as the dream of the single monetary currency may be, its implementation is doubtful, if available reports are anything to go by. The first hurdle confronting ECOWAS members-states is meeting the 10 convergence criteria for implementing the Eco monetary unit as set by WAMI.

WAMI divided the criteria into four primary and six secondary criteria. Surprisingly, only Ghana has, up to the fiscal year 2011, been able to meet all the primary criteria in any single fiscal year. The four primary criteria to be achieved by each member country are: a single-digit inflation rate at the end of each year; a fiscal deficit of no more than 4% of the GDP; a central bank deficit-financing of no more than 10% of the previous year’s tax revenues; and gross external reserves that can give import cover for a minimum of three months.

The six secondary criteria to be achieved by each member country include: prohibition of new domestic default payments and liquidation of existing ones; tax revenue should be equal to or greater than 20 per cent of the GDP; wage bill to tax revenue equal to or less than 35 per cent; public investment to tax revenue equal to or greater than 20 per cent; a stable real exchange rate; and positive real interest rate.

According to available records, assessments of member countries’ efforts to meet the criteria are very bleak. The performance scorecard presented at the 2012 Annual Statutory Meetings of the WAMZ showed that GDP growth was projected to decline to 6.9% in 2012 from 8.7% in 2011. The convergence scale of the whole WAMZ area was also projected to go down from a score of 79.2% in 2011 to 62.5% in 2012; as no member met all the convergence criteria.

The average annual inflation rate also increased from 11.6% in 2011 to 12.6% in 2012. The average inflation rate in 2019 is put at 8.38%. For 2020, it’s envisaged to be 8.04%.

In a reaction to these indicators, Director of Multilateral Surveillance, ECOWAS Commission, Lassane Kabore, described the performance as “dismal”. But, Charlie Robertson, chief global economist at Renaissance Capital, was quoted as saying in a report that only five countries – Cape Verde, Ivory Coast, Guinea, Senegal and Togo – of the region’s 15 countries presently meet the single currency’s criteria of a budget deficit not higher than 4% and inflation rates of not more than 5%.

But, Kabore affirmed the commitment of his commission to the establishment of the Eco.

On February 23, 2018, an economist, Jean-Joseph Boillot, said no serious work on the technical aspects of this implementation has been undertaken, either at the university level or the state level.

Low trading among ECOWAS member-states

It is often said that countries that trade together grow together. But this is not the case of ECOWAS. The countries have the same international passport with assigning countries indicated on the back of the booklet. This has been lauded in the international circle as a major landmark. But still, ECOWAS is the least integrated region in the world in terms of cross border trade, a report by the Borderless Alliance group said. According to the report, the non-application of ECOWAS directives relating to the free movement of goods and people, ECOWAS Trade Liberalisation Scheme, ETLS, and the Common External Tariff, CET, are some of the factors responsible for the low level of trade integration in the region.

Goods have been moving but with a lot of restrictions and undermining rules created by countries in violation of the ECOWAS agreement, which allows movement without tariffs and duties. Experts pointed out that local manufacturing among ECOWAS states is very low. About 92 per cent of the goods traded in the region are foreign and imported to the countries. Only Nigeria has a higher local production volume.

According to a journalist and Executive Director of the Afri-China Media Centre, Lagos, Ikenna Emewu, there is also the problem of confidence – building between members-states. Investors in Nigeria have had terrible times in the hands of Ghanaian officials, because of the need to protect the market in Ghana. Nigerian traders are also experiencing other challenges in Ghana. For instance, the continued deportation of some Nigerians from Ghana on allegations of cybercrime, prostitution, and illegal stay as well as the use of domestic policies to stifle business owners in parts of Ghana have been cited as discouraging to the implementation of the economic integration agenda.

Most members-states would rather prefer goods from outside the region and would mount obstacles to stop the domestic goods from the members-states market, Emewu said. Fewer restrictions have been placed on goods from Asia, Europe and America.

A clarion call for more trade among ECOWAS countries.

It is envisaged that the African Continental Free Trade Area Agreement (AfCFTA), described by the United Nations as a potential game-changer that could create the world’s largest free trade area of 55 countries, will help. AfCFTA is predicted to create a single market with a combined GDP of $2.5trn and 1.2 billion consumers. It goes beyond the scope of existing trade agreements on the continent, aiming to create a continent-wide single market in goods and services, free movement of people and investment, and eventually a customs union with a common external tariff. Advocates of AfCFTA believe that the trade deal will help to address Africa’s economic challenges and allow for the greater, prosperous flow of trade within the continent. They argued that ECOWAS will benefit from the ripple effect.

The African Development Bank Group urged countries on the continent and ECOWAs especially to break down all barriers to trade and investment. The bank’s President Akinwumi Adesina made the call at the opening ceremony of the 54th Annual Meeting of the lender in Malabo, Equatorial Guinea. Adesina also urged countries to accelerate regional integration.

Close of borders by Nigeria

In August, just three months after celebrating its signing the AfCFTA, Nigeria, under what is called “Border Drill’, ban the movement of all goods from countries with which it shares a land border: Benin, Niger and Cameroon. Nigerian officials argued that the primary objective was to curb smuggling of goods such as rice, tomatoes and poultry to bolster Nigeria’s agricultural sector. It was also argued that it was designed to strengthen security along the borders. But analysts said the border drill will affect AfCFTA when it finally took off.

Eco take-off to be changed?

The January proposed take-off date for the commencement of Eco may not be realised as many countries within the region had yet to meet the convergence criteria for the monetary union, according to the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, who confirmed the development in Abuja. She said only Togo had met all the convergence criteria within the last two years for the monetary union.

Mrs. Zainab Ahmed, who spoke on Friday at the opening session of a meeting of ECOWAS Ministers of Finances and governors of Central Banks on the ECOWAS single currency programme. The minister said the inability of other countries in the sub-region to achieve the criteria would make the operationalisation of the Eco currency in 2020 problematic. She said there was a need for member states to pursue appropriate policies and structural reforms that would enable them to meet the convergence criteria.

“This meeting is important because we are at a crossroads. The recommendations we make will have significant implications on the monetary policies we undertake.”

Can political will help?

But, ECOWAS Chairman President Issoufou Mahamadou insisted that the single currency will be issued in January. “We have not changed that but we will continue with assessment between now and then. We are of the view that ready countries will launch the single currency and countries that are not yet ready will join the programme as they comply with all six convergence criteria,” Mahamadou said. He also said there was “a real firm political will” for the region to hastily achieve the single currency. Experts said they are waiting to see the walking of the talk by next month.

But when it was expected most, Issoufou, at the end of the bloc’s meeting at the weekend, rather called on member states to take decisive steps in tackling terrorism in their countries instead of pronouncing the ECOWAS decision in respect of Eco currency take-off, thus adding to the assertion that the currency initiative may not fly next month.

 

 

 

 

 

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