Photograph — Telegraph

The planned launch of the Eco currency by French-speaking countries in West Africa appears to be more of a political move, than an economic one, analysts have said amid the ongoing division between Anglophone and Francophone nations in the region over the matter.

In what has resulted in a major rift, the West African Economic and Monetary Union (WAEMU) in December announced a unilateral decision to rename the CFA Franc as Eco by 2020. President of WAEMU and Ivory Coast, Alassane Ouattara and French President Emmanuel Macron said that the CFA franc would be renamed and undergo several reforms.

The Union comprises seven former French colonies – Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal, Togo as well as Guinea-Bissau (a former Portuguese colony), all of which still use the CFA franc. The currency, which has long been denounced as a colonial relic, was first introduced by France in 1945.

The agreement between WAEMU and France scraps the requirement for the former’s members to keep 50 percent of their foreign reserves with the French Treasury. Instead of depositing their reserves in France, WAEMU nations will place them with the Central Bank of West African States (BCEAO). The reforms would also see French representatives excluded from any decision-making and/or management capacity regarding the eight countries.

But the agreement maintains that the Eco, similar to the CFA franc, is pegged at a fixed exchange rate to the euro while the Bank of France will continue to guarantee the new currency’s convertibility – the ease with which it can be converted into gold or another currency.

After announcing the advanced plan that will see the colonial currency rebranded, the eight countries are hoping to implement a substitute common currency this year. But the unilateral move was last week condemned in strong terms by members of the West African Monetary Zone (WAMZ).

“WAMZ Convergence Council wishes to emphasize that this action is not in line with the decisions of the Authority of Heads of State and Government of ECOWAS for the adoption of the “Eco” as the name of an independent ECOWAS Single Currency,” reads a joint communique issued at the end of an urgent meeting in Abuja on Thursday.

Opposition by other members of the Economic Community of West African States (ECOWAS), mostly consisting of the five Anglophone countries – Nigeria, Gambia, Ghana, Liberia, and Sierra Leone – along with Guinea, is based on the fact that the Eco was originally agreed in June 2019 to be adopted as a collective regional currency, not just a replacement for the CFA franc.

Speaking to CNBC, Sanyade Okoli, CEO of Alpha African Advisory in Lagos said that the move by WAMZ was “unsurprising” and that it was “difficult to understand” why the sub-group would unilaterally adopt the name for their existing currency.

For larger economies such as Nigeria and Ghana, however, there are also concerns over the peg to the euro and the Bank of France’s role in providing a guarantee for converting the currency, which requires a collective pooling of foreign reserves. Accra had signified its interest to join the Eco, CNBC reported, but it opposed the retention of the euro peg, instead urging regional authorities to adopt a “flexible exchange rate regime.”

Political undertones

The sudden announcement by Ouattara, who faces an election in Ivory Coast this October, could be seen as a move to please the electorate according to analysts, with elections coming up in some of the other Francophone West African nations.

“Jettisoning the only colonial currency arrangement still in existence in the world should garner him (Ouattara) quite a bit of popularity ahead of the election,” Marshall Stocker, Vice President and Head of Country Research at investment firm Eaton Vance, told CNBC.

Togo also has presidential elections scheduled for 2020, while there will be parliamentary elections in Burkina Faso and Niger. “The move seems much more political than economic. From an economic standpoint it is more symbolic than anything but may end up having significant implications,” Okoli said.

Tokunbo Afikuyomi, Chief Editor of the Nigerian business publication Stears, says the timing of the announcement is “politically and economically interesting” considering the land border tensions between Nigeria and its neighbours, including Francophone Benin and Niger.

“Nigeria is trying to exclude everyone else with its protectionist policies, so it could be that [the Francophone countries] are thinking: ‘Now, let’s do something else that excludes Nigeria.’ That is also coming into play,” Afikuyomi said.

Despite the divide, regional currency and independent monetary union remain a long-standing ambition for ECOWAS as a whole. The convergence criteria for adopting a new common currency by countries in the bloc include maintaining a budget deficit of less than 3 percent of GDP, a public debt ratio of less than 70 percent of GDP, an annual inflation rate below 10 percent and a minimum of three months of import cover.

An “extraordinary summit” of WAMZ member states to further discuss the issue has been recommended. “The question now is whether the two groups will be able to repair the breach and work together to drive forward the single currency project,” Okoli added.

Elsewhere on Ventures

Triangle arrow