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Replacing CFA with Eco ‘challenges the sovereignty’ of Nigerian naira

The Francophone countries coming together to replace the colonial currency, the CFA Franc with the Eco, may be “a major step forward and a positive thing,” says Andrew S. Nevin, Chief Economist, Nigeria Clients and Markets Leader at PricewaterhouseCoopers (PwC). But for Nigeria, the eventual uniformed adoption of the single currency challenges the sovereignty of its naira.

It may be why the biggest economy in Africa has been reluctant to adopt the Eco, according to analysts who are studying the economic and political implications of the single currency on the continent.

“I can’t see Nigeria agreeing to answer the Eco because, in effect, you’d be losing your own monetary sovereignty,” Nevin tells The Africa Report. “Of course the CBN has been very active planning all of these things, they’ve been active in the foreign exchange market automobiles and the domestic financing requirements,” he said.

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Eco causing tensions in the region

Having announced the retirement of the CFA Franc, the currency left in place by the former coloniser France, the eight countries of the West African Economic and Monetary Union (WAEMU) are anxious to have a new common currency in place by as early as July this year and have opted to replace their currency with the Eco ahead of other members of the ECOWAS, causing tension in the region.

“This sense of urgency by the UEMOA is in response to its members seeking to wriggle out of the influence of Paris. A switch from CFA Franc would mean that links with France would be severely cut and Paris will no longer help to manage the currency of UEMOA members. This move is troubling to other non-UEMOA members of the region who had hoped for a uniform roll-out of the Eco,” says Samuel Segun, Africa Analyst at SBM Intelligence in Johannesburg.

Ghana had also said it would consider joining the Eco if plans to peg it to the Euro were cancelled.

A speedy launch of the Eco is now stoking divisions  among the 15-members of the Economic Community of West African States (ECOWAS). The five anglophone countries of ECOWAS want to adopt the new currency following a slower timetable and as a new currency for the whole region, not just as a replacement for the CFA Franc.

A matter of concern

“It‘s a matter of concern that a people with whom we wish to go into a union are taking major steps without trusting us for discussion,” Nigeria’s President Muhammadu Buhari said in a Tweet on 23 June, adding “we cannot ridicule ourselves by entering a union to disintegrate, potentially no sooner than we enter into it. We need to be clear and unequivocal about our position regarding this process.”

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With Nigeria’s particular opposition to the unilateral move by UEMOA members causing a rift between francophone and anglophone countries, analysts don’t see the Eco gaining easy traction. If anything, they see it as threatening the cohesion of the region.

When news of the Eco was originally announced earlier this year, it came just as Nigeria had closed its land borders with a few francophone countries.

Ghana had also said it would consider joining the Eco if plans to peg it to the Euro were cancelled. For a brief moment, it looked like Nigeria would be alone against the francophone countries.

“Now the English-speaking countries are together in one group, and the francophone CFA countries are in another. Both groups are supposed to be together as one unit in ECOWAS, but we now split this into English-speaking ECOWAS and French-speaking ECOWAS because of what has happened,” says Tokunbo Afikuyomi, an Economist at Stears Business in Lagos.

The decision of the UEMOA to proceed with the Eco ahead of others “has raised issues about trust among ECOWAS members, adds Segun. There are also concerns that the UEMOA states decided to use the Eco name without meeting the ten criteria set out by the West African Monetary Institute, of which all ECOWAS members are required to meet before its implementation,” he notes.

Should France re-evaluate its position?

If the UEMOA’s plan is to sail through the currency implementation, “then France must hold its own end of the bargain by having the Eco pegged to the euro, which will be backed by the French Treasury. The euro will guarantee the Eco’s convertibility and stability, with the French Treasury remaining as guarantor for all eight UEMOA states,” says Segun.

“The French were together with the francophone countries when the Eco was announced. It’s strange that France would not encourage the francophone CFA countries to have discussed the move with the rest of ECOWAS first. It’s possible that France sees Nigeria as a threat to its influence in Africa, and so was not against sidelining Africa’s largest economy,” says Afikuyomi

The future for Eco

If done right, the Eco holds several advantages for the region says Segun. This includes:

  • Market expansion and guaranteeing much-needed currency stability in the region.
  • Knocking-out exchange-rate fluctuations
  • Reducing the cost of transactions among member states
  • Forestalling “competitive devaluation by members of the zone”

For Afikuyomi however, the original Eco that ECOWAS had been working on for 20 years is unlikely to happen anytime soon. “What could happen is a French-speaking version of the Eco. But that will damage ties with the English-speaking countries, and they will probably never agree to join it. Especially when you consider that the French version of the Eco might be pegged to the Euro. Nigeria’s international trade is more geared towards dollars than the Euro.

“For the Eco to have a future, the francophone nations will have to withdraw their plans for their version of it and work with the rest of ECOWAS to meet the agreed conditions,” he adds.

What happens next?

With the UEMOA states appearing to be uncomfortable with the multiple delays of the launch of the Eco, there is need for a more realistic date for the adoption of the single currency, say analysts.

“If the protestation from the Anglophone bloc of the ECOWAS against the UEMOA’s decision to proceed with the Eco is to be taken seriously, it would have to take more proactive steps by offering plausible alternatives.  The ECOWAS would have to ensure that its members meet a fiscal deficit of no more than 4% of GDP, a central bank deficit-financing of no more than 10% of previous year’s tax revenues, gross external reserves that can offer import cover for a minimum of three months, and a single-digit inflation rate of 5%. So far, Ghana appears to be the only country close to meeting all four of these criteria,” says Segun.

One likely scenario is that the CFA francophone countries keep the CFA currency in name until the rest of ECOWAS is ready to move on the Eco. “But, because most member states are behind the necessary conditions (10% inflation and a budget deficit of 3% of GDP), that could take some time. Citizens in the CFA nations would be against having the CFA name for too long as it has the memories of the past. It was originally called les Colonies Françaises de l’Afrique [ the French Colonies of Africa], notes Afikuyomi.

What is certain, says Afikuyomi, is “the scenario where the whole of ECOWAS rushes into the Eco – both English speaking and French speaking countries – is unlikely to happen anytime soon.”

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