Africa’s bumpy road to regional economic cooperation
Business a.m | 12th December 2022
By Dr. Olukayode Oyeleye
Countries of West Africa have an uphill task before them on the political and economic fronts. Recent events have proved rather distressing and they clearly signpost greater causes for worries about the sub-region’s future. Economic policies of countries and regional groupings seem neither promising nor reassuring. Politically and economically, the West African sub-region is divided into two. This sharp division into Anglophone and francophone countries is not helping matters much. Within the ECOWAS, there is a micro-economic unit known as the West African Economic and Monetary Union (WAEMU) also known in French as Union Economique et Monétaire Ouest Africaine (UEMOA). Its membership includes Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo. It is a customs union with a common market. It operates its own economy, spends the same currency – the CFA franc – and is governed by the same central bank. That bank is the Central Bank of West African States, also known in French as la Banque Centrale des États de l’Afrique de l’Ouest (BCEAO). It has its headquarters in Dakar, Senegal. BCEAO is the exclusive and common currency issuing institution for all the WAEMU member states. It issues banknotes, manages monetary policy, organises and monitors banking activities within member states. In all of these, the bloc operates in relative isolation with all other ECOWAS member countries, particularly the Anglophone.
Physical proximities between ECOWAS countries do not therefore naturally translate to economic proximity. For instance, decades after almost all countries of West Africa that were colonised have gained independence, aviation links between francophone countries and their Anglophone neighbours have remained tenuous and uninspiring. The International Civil Aviation Organisation (ICAO) recently concluded a conference in Abuja, Nigeria’s capital. It is doubtful if the conference on aviation considered the weak association between these Anglophone and francophone neighbours within West Africa and their effects on the fortunes of affected countries as well as air safety within the sub-region. West Africa remains a fragile sub-region. Corruption is rife and countries are vulnerable to political and economic shocks, which are becoming more recurrent. All member states of WAEMU countries that operate the same market and have many other things in common have an economic output of $179.06 billion annually. This is far smaller than the 2020 gross domestic product of $429.42 billion recorded by Nigeria alone. Ghana, the second largest economy within the sub-region – even though far behind Nigeria’s – had $74.26 billion nominal GDP in 2021, with $186.682 billion purchasing power parity (PPP).
Politically, there is growing turmoil, particularly in some WAEMU countries such as Mali and Burkina Faso, with cases of coup d’état and toppling of democratically elected leaders and replacement by military officers. These are disrupting the political stability of affected countries. From the economic standpoint, all WAEMU countries remain fragile and small. They are unable to withstand internal and external shocks, let alone take far-reaching measures to boost their economies that are mostly agrarian and dependent on mining, some significant parts of which remain informal. The same WAEMU led the charge of trying to institutionalise the Eco, a common currency. Originally conceived as an ECOWAS-wide currency in early 2000, the Eco was to come on stream all over West Africa even while CFA franc still remained a unifying currency within WAEMU. Despite the immense potential benefits for the economies of ECOWAS in terms of trade, investment flows and political stability, there are doubts about shared agreement and common development vision and roadmap in the short term although the establishment of the Eco has been postponed by ECOWAS till 2027. This Eco became a bone of contention between WAEMU countries and the wider ECOWAS recently when the former made a surreptitious but abortive attempt to rename their common currency as Eco, thereby supplanting the one earlier envisioned by ECOWAS since early 2000. The French-backed WAEMU CFA franc is pegged to the Euro. It was earlier pegged to the French franc. In what appeared to be like stirring the hornets’ nest, President Alassane Ouattara of Côte d’Ivoire announced the renaming of the CFA franc to “Eco” in 2019, an announcement that elicited serious backlash from the English-speaking members ECOWAS. The ensuing battle pitted the ECOWAS and the UEMOA against each other as the Eco would have become an appendage of the European Central Bank (ECB), especially since France has long abandoned its own franc since its accession to the Eurozone and adoption of the Euro as its currency.
Meanwhile, the idea of launching a single currency (the Eco) in West Africa after long and multiple delays – in 2005, 2010, 2014 and 2020 – remains at the back burner and a dream for now, compounded by the impacts of the COVID-19 pandemic outbreak of 2020. The vacuum created by this delay was apparently what WAEMU intended to capitalise upon in their foiled attempt to rename CFA franc as the new Eco. It looked like a subtle attempt by France to legitimise its continued influence on West Africa’s economy via currency control, with a plausible argument of regional integration that is portrayed with the colouration of West Africa’s sub-regional currency since France itself has abandoned its own franc. It was likely that the entire field had been scanned by France and had thus emboldened WAEMU to fill the Eco space. Nigeria and Ghana, two English-speaking economic giants within ECOWAS seem unable and unwilling to lead the Eco struggle further despite their relative population and economies, accounting for 65 per cent of the regional GDP and about 50 per cent of the population. In addition to the apathy arising from fears of losing national fiscal sovereignty under a regional arrangement, the two countries are currently struggling with their respective domestic economies. Devaluation has greatly weakened the currencies of both countries to the extent that Nigeria began to lay more emphasis on the dollar for domestic transactions, particularly among the politicians until the central bank had to make a sudden change in the design of the currency notes some days ago. In northern Ghana, however, many transactions are now reportedly done in CFA franc instead of the nation’s cedi because of the precipitous drop in the latter’s value. The central banks of both Ghana and Nigeria recently introduced digital currencies raising concerns that they have abandoned the Eco project.
January 1st in 2023 marks the second anniversary of the commencement of trading on the platform of the African Continental Free Trade Area (AfCFTA). But the past nearly two years have not proved inspiring, at least not in West Africa where the continental body has its headquarters. In Ghana, the host country for the headquarters, indigenous traders have been locked in some forms of battle against Nigerians trading in their country for fear of domination by the perceived outsiders. If this is not a bad example of trade relations between neighbouring countries, what else is? Trade relations between the two anglophone countries provide an insight into the difficulties in resolving crisis between Ghanaian and Nigerian traders and the hardship in actualising common currency to boost cross-border trade and economic development. The retaliatory measures embarked upon by Ghanaian traders did not happen without the knowledge and tacit connivance of the government officials as the Ghana Union of Traders’ Association (GUTA) clamped down on businesses owned by Nigerian traders in a tit-for-tat response following the closing of Nigeria-Benin border in August 2019. Nigeria’s land borders were ordered closed over illegal importation of various items such as foods, drugs and arms into Nigeria from neighbouring West African countries. The country’s four land borders were ordered to be opened in December 2020 after nearly a year and a half of closure.
The solution for reducing the difficulties in trade relations and facilitating economic cooperation between Nigeria and Ghana could be coming from the Afreximbank’s Pan African Payment and Settlement System (PAPS), an initiative that is expected to enable instant, cross-border payments in local currencies between African markets. Whether this will also bring the Anglophone and francophone countries’ markets together, to what extent and how soon remain more of an educated guesswork, particularly as PAPS’s adoption might weaken the resolve for, and slow down the speed of, actualisation of a common currency, even if does not supplant it. A common currency that would boost cross-border trade and economic development in West Africa ought to be undergoing a test-run by now.
The scorecard of two years of AfCFTA in operation is expected to provide an idea on the improvement of the ease of trading across borders in the absence of a common currency. The findings so far from West Africa will be of great interest. West Africa could very well be a microcosm of continent-wide trading realities. An estimate states that the value of informal cross border trade is significant across all African subregions. It was estimated that informal cross border trade is equivalent to between seven and 16 percent of formal intra-African trade flows, and to between 30 and 72 percent of formal trade between neighbouring countries. Going by the experience between neighbouring countries, it could be validly argued that a lot of cross-border trade is carried out unrecorded. In essence, many countries of West Africa lose nearly half the revenue accruing from trading between neighbouring countries. For West Africa, this means a significant loss to the government in terms of revenues. It also exposes the weaknesses in border patrol, surveillance and monitoring. The implications are enormous, for national economies and cross-border security. The relative ease with which goods are moved across the border, without the knowledge of customs officials, or with the assistance of complicit officials explains in part the reasons for arms smuggling which is a major contributor to an upsurge and spread in banditry, kidnapping and Islamic militancy that are fast becoming a sub-regional security crisis in West Africa.
Widespread insecurity is a potential deterrent to cross-border trade as most traders become vulnerable to attacks. Cross-border supply chain disruption may likely increase in frequency and impacts. These will discourage traders and dampen the trade volume, thereby reducing both informal and formal trade within the sub-region. It will have consequential negative effects on countries’ economies. In West Africa, the fact that the growing cases of armed attacks by the jihadists in the borders of Mali, Burkina Faso, Côte d’Ivoire, Nigeria, Benin and Togo clearly imply that the sharp delineation of the sub-region along the post-colonial lines of WAEMU versus the rest of ECOWAS is not helping matters much as the assailants know no such delineations and the need for cooperation between countries become more apparent. Moreover, the impacts of their attacks seem to be spreading across, irrespective of their official delineations, from the Sahel to the coastal West African countries. A troubled and vulnerable sub-region therefore has a lot of challenges bogging down its common economy. The security crisis will have to be tackled head-on for West Africa to make any remarkable progress. ECOWAS countries need to revisit their common challenges very quickly and ferret out common solutions to them for their common good. The two big economies have huge roles to play in this regard. The mostly small and poorer countries cannot continue to be left to fend only for themselves or left at the mercy of foreign donors and periodic funds which are aimed at specific and parochial sectors for limited durations. Instability in any of the smaller countries easily becomes a threat to neighbouring countries that are bigger. It constitutes a drag to their economies and a drain to their resources. These need to be commonly figured out and arrested for the common benefits of all countries in West Africa.