The accession to the ECO: a timely moment for West Africa

Questo articolo è inserito nel filone “Africas from within – approfondimenti sulla moneta ECO”, 
una serie di contributi di studiosi e ricercatori provenienti principalmente dai paesi
coinvolti nel processo di integrazione monetaria regionale o nella diaspora.  

Il nostro intento è di fornire ai lettori una pluralità di punti di vista e approcci su un tema
per nulla facile, che coinvolge paesi con modelli economici poco affini o in contrasto tra 
loro, con un impatto che trascende l’ambito puramente economico e abbraccio ogni ambito della
vita di milioni abitanti. Inoltre, mantenere una traccia dell’evoluzione degli eventi e 
degli scambi politici e l’orientamento dell’opinione politica ci permetterà di rivivere,
in forma diversa, l’analogo processo in Europa iniziato nel 1969 e tuttora in corso. 

 

Overview

Prior to the establishment of Economic Community of West African States (ECOWAS), the countries united because they share the geography of West Africa. Their understanding of the synergistic effect united them under the umbrella of ECOWAS to eventually live in an economic and monetary union. With a huge market and GDP, the result would be a win-win for all stakeholders, including Member Countries, households and businesses. In Liberia, the initial excitement of the launch of the ECO has waned because it is not on any agenda, including the legislature. However, I personally believe that this is the optimum time to launch the ECO given the preparatory work that has been ongoing for years by all the integration institutions supported by the individual effort of the countries involved.

 

Evolutionary Horizon

Prior to ECOWAS there was only West Africa. The proposal for a regional community emerged in 1972, but the Treaty of Lagos was signed in 1975, thereby giving birth to ECOWAS. Cape Verde joined in 1976, while Mauritania withdrew its membership in 2000. The 15 countries of ECOWAS are: Benin, Burkina Faso, Cape Verde, Cote d’Ivoire, Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.  The three official languages spoken are English, French and Portuguese. The Anglophone and Francophone blocs are the key blocs of the region, and there is a two-nation Lusophone Community. The Community has a total land area of 5.1 million square kilometers, natural resources: manganese, gold, copper, uranium, bauxite, limestone, iron ore and crude oil, tin, coal, phosphate, nickel, lithium, logs, groundnuts and it produces coffee, cocoa, rubber and oil palm.  According to ECOWAS countryeconomy.com, the regional population is estimated at 376,793,844, annual GDP of $614,916M and GDP per capita of $1,632.

The region is exposed to external economic shocks due to its trade openness, export concentration and dependence on strategic imports, all of which combine to define its lives and livelihood status, and the degree of sustainable socio-economic and political stability. This indeed is the case since the volume of intra-ECOWAS trade is in the 12% to 15% range. The high degree of trade openness is an indication of the members’ vulnerability, explained by external shocks emanating from terms of trade shocks. Regarding exports concentration, the Community focuses on the export of a limited number of commodities, which primarily are not protected from global market price volatility. This explains why international market price slump generates concerns with respect to export earnings, fiscal developments, output growth and macroeconomic stability in the region. The dependence on strategic imports is also alarming due to the entire Community’s strong reliance on fuel, food and capital equipment.

 

The Adoption of the ECO

At the 55^th Summit of the Authority of Heads of State and Government on June 29, 2019 in Abuja, the “ECO” was adopted as the ECOWAS single currency with the planned launch in 2020. Prior to the anticipated launch and subsequent postponement in 2020, other postponements were 2003, 2005, 2010 and 2014. Primarily the postponements were due to member states not concurrently satisfying the accession criteria which include; Primary Criteria: Budget Deficit, (basis including grants) ≤3%; Average Annual Inflation Rate ≤5%; Central Bank Financing of Budget Deficit ≥10%; Gross External Reserves (in months of imports) ≥3 months; and Secondary Criteria: Nominal Exchange Rate Variation ±10% and Public Debt to GDP Ratio ≤70% and other requirements, for example national preparedness. However in 2020, the year of the announced launch, “Nigeria’s position on the eco is that the convergence criteria (between states) have not been met by the majority of countries,” tweeted the presidency on Monday, 10 February, adding, “There must therefore be a postponement of the launch of the single currency.” 

Then: “We, in Ghana, are determined to do whatever we can to enable us join the Member States of UEMOA, soon, in the use of the ECO…”

Table 1 shows that concurrently satisfying all of the Primary Criteria as required is difficult if not impossible.

Table 1: Number of countries that have met the Convergence Criteria

 

Political Orientation, Power Dynamics  and Public Debate  in Liberia 

No thought process is currently on-going as the issue is not resonating with politicians and policy makers, civil society, business groups, ordinary people and students. However, one group that stands out to have been the initial advocate and beneficiary of the ECO is the cross-border marketing community, but is silent also.

The initial euphoria was strong, given the depreciation of the Liberian Dollar against the US Dollar with some Liberians anticipating the ECO as a store of value. There appears not to be any polarization and neither is there a unanimity given the silence at the moment. Surely when the issue comes out again Liberians will be divided for and against the ECO given that Liberia operates a dual currency economy; the Liberian Dollar and the US Dollar. Liberians may surrender the local currency for the ECO but may not be prepared to surrender the US Dollar for the ECO.

Even though the adoption did not find itself on the agenda of the legislature, it was seen as a relief, given that the Liberian Dollar compared to the US Dollar exchange rate stood at LD187.93/186.13/1USD (e.o.p/p.a) and inflation at 25.80/27.30 percent (e.o.p/p.a) respectively. Table 2, demonstrates why the LD to ECO swap may be possible.

Table 2: Inflation and Exchange Rate Developments

	2011	2012	2013	2014	2015	2016	2017	2018	2019
	Inflation
End of Period	11.40	7.70	8.50	7.70	8.00	12.50	13.90	28.50	25.80
Period Average	8.50	6.90	7.60	9.90	7.80	8.80	12.40	23.40	27.30
	Exchange Rate
End of Period	72.50	72.50	82.50	82.50	88.50	102.50	125.45	157.56	187.93
Period Average	71.93	72.50	81.88	82.61	86.19	94.40	112.61	114.10	186.43

Source: Central Bank of Liberia (CBL)

 

Economic Impacts of Adopting the ECO

The economic impact of introducing the ECO will be a monument to envy! The baseline of the regional economy is a population of about 376.8 million inhabitants, annual GDP of $614,916M, existing capital markets, multiple national currencies and free movement of goods and peoples capped at maximum 15% and a large community of businesses: manufacturing and services including bank and non-bank financial institutions.

The introduction of the ECO is expected to rally all of these indicators and elevate political and socioeconomic collaboration and security, promote growth and employment, create ancillary businesses and asset classes, stimulate intra-regional trade beyond its current limit, increase the welfare of the population, reduce poverty and achieve other macroeconomic goals.

While facilitating trade, it will lead to lower transaction costs because there will also be multiple intervening opportunities, and facilitate payments using any platform anywhere and anytime especially as the payments system is gaining momentum in the region. However, critics worry that Nigeria, the region’s biggest economy, will dominate monetary policy and rake the projected benefits associated with increased capital flows to the region.

 

Personal Reflection

Will the ECO be launched? Yes! The region is much closer to the launch than any other time. From my prior professional interaction, observation and experience as an economist with the CBL and West African Monetary Institute (WAMI), the massive work being done by integration institutions, including the West African Monetary Agency (WAMA) and ECOWAS justifies this. Their involvement proves that the launch is independent of political leaders and policy makers but partly on the work of economists and other practitioners, but fully on the performance of the domestic economy, underpinned by robust and meaningful policy stances which target the satisfaction of the assessment criteria and the macroeconomy of the individual member states.

Another support for which this appears to be timely is that of the region’s two blocs, the West Africa Economic and Monetary Union known in French as Union Economique et Monétaire Ouest Africaine (WAEMU/UEMOA) and the West African Monetary Zone (WAMZ), WAEMU has a functional structure and institution, the French speaking central bank; the BCEAO is functioning and its common currency, the CFA is circulating, meeting the needs of the bloc and has registered it accession readiness. The issue I see is the Anglophone bloc, which is making effort for a central bank and single currency. The accession requirements and conditions will bump the realization of the union because the individual capacity to achieve all or some of the criteria at the same time, for example, an average annual inflation rate of at most 5%, as revised, is daunting.

 

Reference

Cleverly, C., “Future of Currency in West Africa: CFA Franc Collapse and Eco Inadequacy” March 13, 2013.

CBL Annual Reports 2019, 2018, 2017 and 2014.

Dewast L., “West Africa’s eco: What Difference would a Single Currency Make?”. BBC Africa, 6 July 2019.

ECOWAS Macroeconomic Convergence Report 2019

Fröhlich, S., “West Africa’s New Currency, the Eco: Rebrand or Fresh Start?” www.dw.com › west-africas-new-currency-the-eco-rebr…

Hawkins, J., and P. Masson, “Economic Aspects of Regional Currency Areas and the use of Foreign Currencies”. BIS Paper No 17.

Ordu, A. U., “An Evaluation of the Single Currency Agenda in the ECOWAS Region” Brooking, September 24, 2019.

The links below lead you to videos which show how mix the conversation is proceeding: https://www.youtube.com/watch?v=ZGV7_hn5BR0 ; https://www.youtube.com/watch?v=AL-Rjud0q30