ECO, the new ECOWAS currency, its attendant effects on the West African Money Market and Intracontinental Trade Volumes. Why your business should act fast.
DOLAPO AKINBISOLA is a Business Development Professional with experience for spanning over 8 years in the Health, Food, Technology/ICT, Education and Business Sectors.
He is currently the Business Development Lead at LoftyInc Allied Partners Limited, an indigenous Innovation Development Company (operators of Nigeria’s pioneer Tech Hub, Wennovation Hub)
The Eco is the proposed name for the common currency that the West African Monetary Zone (WAMZ) plans to introduce in the framework of the Economic Community of West African States (ECOWAS). In simple words, rather than having Naira, Cedis etc…all West Africans in the zone will adopt Eco as their legal tender.
After its introduction, the goal is to merge the new currency with the West African CFA franc (used by most French-speaking members of ECOWAS since 1945). This will create a common currency for much of West Africa. A common currency operated from a single Central Bank
For the Eco to be implemented, ten convergence criteria, set out by the West African Monetary Institute (WAMI), must be met.
These criteria are divided into four primary and six secondary criteria. Up to the fiscal year 2011, only Ghana has 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:
1. A single-digit inflation rate at the end of each year
2. A fiscal deficit of no more than 4% of the GDP
3. A central bank deficit-financing of no more than 10% of the previous year’s tax revenues
4. 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 are:
1. Prohibition of new domestic default payments and liquidation of existing ones.
2. Tax revenue should be equal to or greater than 20 percent of the GDP.
3. Wage bill to tax revenue equal to or less than 35 percent.
4. Public investment to tax revenue equal to or greater than 20 percent.
5. A stable real exchange rate.
6. A positive real interest rate.
The truth is that majority of West African countries currently can’t meet up to these criteria. This simply implies that the single currency for West Africa conversation would only continue. I don’t see it happen anytime soon. If it does as it is, it would be so burdensome on some countries (like Nigeria & Ghana) and overly beneficial to some (while there maybe some benefits).
You’ll recall that the FG of Nigeria stalled a little before conceding to agreeing to lean in the direction of a unitary currency. The reason is because, as it stands, it has not so very positive impact of Nigeria.
We have literally the largest GDP in West Africa
1. Single digit inflation rate means for a particular year the Inflation rate should be kept under 10% (not up to 10%). This is a tough call as even Nigeria haven’t achieved that in a while. As at 2019, our inflation rate rose to about 11.2%. Last time we had a single digit inflation rate was 2015
2. Fiscal deficit is the difference between total revenue and total expenditure of the government. It is an indication of the total borrowings needed by the government.
Note that while calculating the total revenue, borrowings are not included.
Fiscal deficit takes place either due to revenue expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds. In the past 5 years, you’ll observe there has been a lot of borrowings and spending by the FG on capital expenditure.
In 2018, Nigeria’s budget deficit amounted to around 4.52 percent of GDP. In 2017, it was around -5.2% That’s quite high.
Truth is that Nigeria doesn’t meet up to the 4 primary criteria nor the 6 secondary. So imagine other West African countries like Gambia, Togo etc. As at the last check only Ghana met and I think recently Togo did well.
It would be detrimental to effect Eco right now. It would lead to massive inflation and a few countries would have to carry the weaker countries. Hence, rather than strengthen the region, we’ll have a weaker region
The formal adoption of the name “eco” for the single currency project by leaders of the ECOWAS, however, is a clear indication that sooner than later, if these conversations continues and most of these countries keep working towards meeting the set criteria, then we would eventually have the Eco as a currency in West Africa.
HOW DO WE POSITION OURSELVES AS LEADERS OF WEST AFRICAN BUSINESSES?
I’ll try as much as possible to make it very simple and practicable
Before I proceed to provide these answers, I’ll like to draw our attention to the African Continental Free Trade Area (AfCFTA). It is closely linked to this Eco conversation
In March 2018, African countries signed a landmark trade agreement, the African Continental Free Trade Area Agreement (AfCFTA), which commits countries to remove tariffs on 90 percent of goods, progressively liberalize trade in services, and address a host of other non-tariff barrier. If successfully implemented, the agreement will create a single African market of over a billion consumers with a total GDP of over $3 trillion. This will make Africa the largest free trade area in the world.
Now it’s important for you to notice the incidence of these two seemingly separate economic conversations (Adoption of Eco & signing of AfCFTA). It’s not a mere coincidence. African govts are simply preparing for the inevitable future.
Note: As a Biz person, we must have close ears to economic policies (either why conversations are ongoing or when they are effected). This should guide your corporate strategy. Any company that fails to factor in macro economic factors wouldn’t be here for the longer haul.
A major mistake Gokada made. Lobbying is a core business devt skill every serious biz should have.
1. Bridge the language barrier as a Biz. Invest in language about 85% of West African countries are French-speaking. If the AfCFTA and Eco goes through, businesses who can communicate in French would easily get adoption and the ability to close deals across board.
I remember sometime in 2018 when we were trying to get a deal with the Malian govt, our team being solely English was a barrier. Of course, we didn’t get the deal, however, I believed we would have made better progress should our team had a better grasp of French. So invest in French. Either by ensuring your team learn the language or you employ a French team member (or someone who is fluent) who can lead those Biz Devt conversations. I’m aware First Bank has core middle managers in an academy who have been mandated to learn French. They are preparing for the future.
2. Commence Biz Devt efforts to countries in the Eco region. Don’t wait till it is ratified. People tend to be willing to do Biz with people they are already familiar with. This is the time. Attend pan-West African corporate events and build your network. It’s important to be well positioned.
In the world of today, emails so the magic. As long as you can communicate value and buy the confidence of the other party, you’re good to go.
In the course of my work, we’ve signed contracts (worth hundreds of millions of Naira without physically interfacing). So it’s possible.
3. Prepare your Biz for competition. The advent of AfCFTA and Eco mean a lot of foreign goods & services would cross borders and it would mean a lot of competition from businesses across West Africa (and not just Nigeria). It is time to begin to study the landscape of other west African countries, analyse their Biz and see what they are doing better/not and build processes to leverage that.
4. There’s a lot of opportunities for Nigerian businesses because across West Africa, we are way ahead as a result many companies would be able to expand their services across borders. I envisage many smart Nigerian companies begin to open pan-African offices.
The grass is green and we really can do better with the policy. There are teething challenges to getting both policies adopted which can hamper how soon it can fly. However, smart businesses prepare.
Also, it could mean pan-West African career opportunities for graduates too (graduates should all the grass is green and we really can do better with the policy. There are teething challenges to getting both policies adopted which can hamper how soon it can fly. However, smart businesses prepare…so prepare…like I mentioned French language seems a necessary 2nd language).
I wish everyone success in the business/career endeavours
Session moderated by:
Oluwatomisin Olowoyo, Principal, CSA Academy