GIANCARLO ELIA VALORI Honorable de l’Académie des Sciences de l’Institut de France President of International World Group The new African currency

On June 11, 2019, during a meeting held in Abuja, the

federal capital of Nigeria, the fifteen members of the

Economic Community of West African States (ECOWAS)

decided to coin - most likely within 2020 - a new African

currency, whose name has already been chosen: "ECO".

 The fifteen States of ECOWAS - the association that

deals above all with part of the implementation of the CFA

Franc - are the following: Benin, Togo, Burkina Faso, Cap-

Vert, Ivory Coast, Gambia, Ghana, Guinea, Guinea-Bissau

and Liberia, which founded ECOWAS in 1964. Later, with

the further definition of the Lagos Treaty in 1975, also

Mali, Niger, Nigeria, Senegal and Sierra Leone joined it.

 It should be noted that while Mauritania withdrew from

ECOWAS in 2000, since 2017 the Alawite Kingdom of

Morocco has officially requested to join.

 However the "ECO" project, which has been lasting - at

least programmatically - since 2015 and much echoes the

"EURO" project, was born within a more restricted

association of States than ECOWAS, namely the West

African Monetary Zone (WAMZ), which is composed of

Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone.

 As can be seen, said States also belong to ECOWAS, but

they intend to reach an economic and monetary union very

similar to the EU’s, considering that their economies are

less different than those of the whole group of countries

belonging to ECOWAS.

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 It should be recalled that the ECO launch has been

postponed as early as 1983 and is currently expected to take

place in 2020, but again only on paper.

 Using an old formula of summer media jargon, France

defines it as a "sea snake", but we must always be very

careful about oversimplifications and low esteem for

friends and foes.

 Hence, certainly eight ECOWAS countries shall abandon

the CFA Franc, while the other seven countries their

national currency.

 As the final communiqué of the last meeting held by the

fifteen Member States states, a "gradual approach" is

required for ECO, starting from those countries that show a

more evident "level of convergence".

 As we all know, in the case of the EU and its Euro, the

convergence criteria were price stability - which is seen as

the only sign of inflation, although we do not know to what

extent this idea is correct - and "healthy and sustainable"

public finance, which means nothing but, within the EU,

means a deficit not exceeding 3% of GDP and public debt

not higher than 60% of GDP.

 From this viewpoint, things are not going very well in

Africa.

 Africa’s debt has just slightly exceeded 100 billion euros,

after Ghana recently taking out a 2.6 billion Euro-

denominated loan, in one fell swoop.

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 In 2018 alone, African countries reached a total debt of

27.1 billion euros, but in 2017 Egypt, Ghana and Benin had

borrowed 7.6 billion euros.

 Nigeria will reach 17.6 billion euros of debt at the end of

this year.

 Ten African countries have already issued Eurobonds and

there will soon be 21 of them.

 It is equally true, however, that the African countries’ debt-

to-GDP ratio is on average 53%, while in the 1990s and in

the first decade of 2000 it had reached 90-100%.

 The obvious reasons underlying the recent increase in the

African countries’ Euro-denominated (and dollar-

denominated) debt are the following: the consequences of

the global financial crisis and the structural decrease in the

price of raw materials.

 Moreover, considering the very low interest level in the

United States and Europe, many investors have also begun

to operate in Africa.

 Currently Egypt is the most indebted country, with a total

of 25.5 billion euros.

 It is followed by South Africa (18.9 billion euros), Nigeria

(11.2 billion), Ghana (7.8 billion), Ivory Coast (7.2 billion),

Angola (5 billion), Kenya (4.8 billion), Morocco (4.5

billion), Senegal (4 billion) and, finally, Zambia with only 3

billion euros.

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 The analysts of international banks predict that, in the

future, the Euro- and dollar-denominated debt will not be a

problem for African countries.

Quite the reverse. According to the World Bank, the debt-

to-GDP ratio is expected to fall by up to 43%, on average,

in all major African countries.

 The worst standard in terms of share of Eurobonds on total

debt is Senegal (15.5%), while Tunisia remains the best

standard, with 6.3 billion euros of debt issued through

Eurobonds.

 As can be easily imagined, other variables are the cost of

debt service, which has doubled in two years up to reaching

10%, and the uncertainty of the barrel price on oil markets,

considering that all these countries, except Nigeria, are net

oil importers.

 Therefore, it is certainly not possible to talk about

"sustainable" finance, even though many ECOWAS

countries have a debt-to-GDP ratio that currently make us

envious.

 As is well-know, also the exchange rate stability - required

for entering the Euro area - is one of the primary

"convergence" criteria.

 A 6.3% average annual GDP growth is expected for the

15-member African association, considering the expansion

of oil extraction in Ivory Coast, Sierra Leone, Burkina Faso

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and Ghana, while fiscal stability - which is, on average,

about 1.7% higher in 2019 - is acceptable.

 Hence, if we apply the usual Euro criteria, the new ECO

currency appears very difficult, but not impossible, to be

created - at least in the long run.

 ECOWAS has repeatedly advocated its single currency

project: it was initially theorized as early as 1983, then

again in 2000 and finally in 2003. As already seen,

currently there is much talk about 2020 as the possible date

for its entry into force.

 Certainly there is already an agreement between ECOWAS

countries for the abolition of travel permits and many of the

fifteen Member States are entertaining the idea of

economic and productive integration projects.

 Nevertheless, as far as the budget deficit convergence is

concerned, only five countries, namely Cap-Vert, Ivory

Coast, Guinea, Senegal and Togo can currently comply

with the single African currency project, since they record

a budget deficit not higher than 4% and an inflation rate not

exceeding 5%.

 Hence we cannot rule out that there will be convergence in

reasonable time, but it is unlikely it will happen by the end

of 2020.

 Moreover, the levels of development in the fifteen Member

States are very different.

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 It is impossible to even out the differences in the levels of

debt, interest rates and public debt in the short term,

considering that the share of manufacturing in Africa is

decreasing and the economies that operate on raw materials

have always been particularly inelastic.

 Furthermore, Nigeria alone is worth 67% of the whole

ECOWAS GDP - hence the ECO would ultimately be an

enlarged Naira.

 With the same problems we have in Europe, with a Euro

which is actually an enlarged German Mark.

 The inflation rates range from 27% in Liberia to 11% in

Nigeria, with Senegal and Ivory Coast recording a 1%

"European-style" inflation rate.

 Certainly the CFA Franc is a "colonial" instrument, but it

has anyway ensured a monetary stability and a strength in

trade that the various currencies of the former French

colonies could not have achieved by themselves.

 It should be recalled that the mechanism of the CFA Franc,

envisages that the Member States must currently deposit

50% of their external reserves into an account with the

French Treasury.

 However, the Euro problem must be avoided, i.e. the fact it

cannot avoid asymmetric shocks.

 The Euro is a currency which is above all based on a fixed

exchange rate agreement.

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 We should also consider the adjustments made by Nigeria

in 2016 - and, indeed the inflation rates of the various

ECOWAS countries are stable, but not homogeneous.

 They range from 11% in Nigeria to 1% in Senegal.

Between 2000 and 2016, Ghana had an inflation rate

fluctuating around 16.92%.

 The fact is that all ECOWAS countries, as well as the other

African States, are net importers.

 Furthermore the West African countries do not primarily

trade among themselves.

 While single currencies are designed and made mainly to

stimulate trade, this is certainly not the case.

 The CFA Franc, however, was a way of making the former

French colonies geopolitically and financially

homogeneous, with a view to uniting them against Nigeria -

the outpost of British (and US) interests in sub-Saharan

Africa.

 Furthermore, none of the ECOWAS governments wants to

transfer financial or political power to Nigeria, nor is the

latter interested in transferring decision-making power to

allied countries, which are much smaller and less globally

important.

 The region could be better integrated not with a currency -

thus avoiding the dangerous rush that characterized the

Euro entry into force - but with a series of common

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infrastructure projects or with the lifting of tariff and non-

tariff barriers.

 The largest trading partner of sub-Saharan Africa, namely

the EU - with which the ECO would certainly work very

well - currently records a level of trade with the ECOWAS

region equal to 37.8%.

 Nigeria exports only 2.3% to the other African partners and

imports less than 0.5%.

 However, if ECO is put in place, this will be made possible

thanks to a possible anchorage to the Chinese yuan.

 This would avoid excessive fluctuations - probable for the

new currency - but would create ECOWAS African

economies’ greater dependence on the Chinese finance and

production systems than already recorded so far.

 Certainly it would be a way of definitively anchoring

Africa to the Chinese economy.

 From 2005 to 2018, Chinese investment increased

everywhere, but in Africa it totalled 125 billion US dollars.

 Africa is currently the third global target of Chinese

investment.

 17% of said Chinese investment has been targeted to

Nigeria and its ECOWAS "neighbours", especially to

railways and other infrastructure.

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 Moreover, in 1994, thanks to its liquidity injections China

rescued the African wages from the CFA Franc

devaluation, which had halved all incomes.

 Those who govern Africa will control globalization. India

is now the second major investor in Africa, after China. The

EU takes upon itself the disasters of African globalization,

but not the dividends.

 Whoever makes mistakes has to pay. There has not been a

EU policy that has "interpreted" Africa intelligently, but

only as a point of arrival for ever less significant "aid".

 Therefore China will bend the African economic

development to its geostrategic aims and designs.

 China offers interest rates on loans that are almost seven

times lower than Western markets, which never reason in

geopolitical terms, as instead they should do.

Giancarlo Elia Valori