The currency change in the ECOWAS countries and the future of the EU influence
5 July, 2020
On the 20th of May 2020, the French Council of Ministers adopted a resolution to end the involvement in the West African CFA franc. The decision implied that the Central Bank in Paris renounced any monetary governance on the former colonies in West Africa. Historically, the CFA franc guaranteed to France and the European Union significant dependence links with West African countries. In the near future, these countries will adopt a new independent currency called ECO creating a new monetary union in the ECOWAS, Economic Community of West African States. Hence, a question naturally emerges: how will the currency change in the ECOWAS countries shape the present and future relations between those countries and the European Union?
The West African CFA Franc
Before analysing how the EU influence over the area will be shaped, there is the need to describe the monetary structure of the CFA; what are its advantages for the European Union and its Member States and, on the other hand, what are the disadvantages for the African countries. As a matter of fact, after the fall of the fourth French Republic in 1958, France started a decolonization process from the West African countries following great pressure for independence from local movements and leaders. In 1960, most of the French ECOWAS countries became independent but France kept its strong political and economic influence over those territories. This dynamic has been dubbed by some as a form of neo-colonialism known as “francafrique”. As the nexus between economic dependence and political influence is strong, France perpetuated its interests in the energy, trade, and political choices in these African countries. This led to the recreation of a sort of economic “ancient régime”, where self-determination, industry development, and trade exchanges were limited by the existing monetary conditions.
In short, the CFA franc was firstly adopted in 1945 and it traces back its name to its colonial origins “franc des colonies françaises d’Afrique”. It is adopted by fourteen states in West and Central Africa with two different currency systems respectively called: West African CFA franc and Central African CFA franc. Both CFA franc currencies are pegged to the euro in a fixed exchange rate guaranteed by the French Treasury, which holds also 50% of the foreign deposits and prints the currency. After the decision ratified on May 20th, this dynamic does not hold anymore, and France is set to stop co-managing West Africa’s currency. Moreover, previously, the French state also had the right to nominate representatives to the decision-making committee of the UEMOA, the West African Economic and Monetary Union. For what concerns the fixed parity value, it is still under discussion, but it will likely cease to exist due to the fact that Nigeria set it as an indisputable condition to join the new currency. All the West African countries are politically willing to find a deal with Nigeria since the country is pivotal in West African trade. For instance, it accounts for one-third of all ECOWAS’s GDP. Thus, the previously mentioned resolution is set to end the French’s “golden share” power over the West African monetary policy. This power refers to how France has been setting for decades its political will to decisions of the committee, with a sine qua non capacity.
The CFA franc system led to advantages for West African countries such as economic stability and low inflation compared to other developing countries like Nigeria, which has an inflation rate of 16.52% in 2017 compared to the correspondent rate for CFA franc countries. At the same time, the disadvantages are great. Since CFA is pegged to the euro, the trade between France and the former colonies has been facilitated. On one side, these countries highly import from France and also the EU at lower prices in relative terms. On the other side, when it comes to exporting their products to the world market, they are not competitive since the euro currency value is higher than the currencies of other developing countries producing the same goods. Hence, a decrease in relative trade capacity. This implied both the creation of an overdependency mechanism between the EU internal market and the former French colonies through privileged access and a decrease in the regional trade among those regions.
Therefore, the absence of a currency devaluation mechanism impacted imports, exports, and governments’ spending capacities. In other words, this fostered a dependence link that perpetuated the post-colonial legacy. African economists also argued that in exchange for the deposit guarantees provided by the French treasury, African countries have been channelling back more money to France than the what they receive in aid by France itself, and from the EU Emergency Trust Fund for Africa.
Present and Future Relations Between ECOWAS and EU
In 2019, the ECOWAS countries ruled to adopt in the near future a new currency called ECO, independent from the euro. As a consequence, the former French colonies have to get independent from the French treasury and European monetary policy. This decision is set to change the present and future relationship between the EU and the ECOWAS countries and mainly in three areas: the economic and trade side, the international security and peace one, and, finally, the political relationships and how they will be impacting EU-African dialogues on migration and aid.
Economics and Trade
On the economic monetary side, the ECOWAS countries will be able to both decide their common monetary policy independent from the European Central Bank and export their productions more easily in the world market. In fact, the West African countries will develop an exporting competitive advantage thanks to the currency devaluation mechanism. Moreover, the aim of Eco is also to foster trade integration among the West African countries, which is currently extremely low, meaning that every country is sourcing what needed from other continents instead of its neighbours.
For what concerns the EU-ECOWAS trade relations, no significant impact will likely be experienced in the short term but in the medium- long-term. West Africa and the EU concluded in 2014 the negotiations for an Economic Partnership Agreement (EPA). In that year, the trade flows accounted for €20.4 billion West African exports to the EU and €25 billion EU exports to West Africa. The agreement reports that “EU supplies a large part of the equipment that contributes to economic growth and development in the region and is the main export market for West African agricultural and fisheries products”. The € 45.5 billion trade flow accounts for West Africa’s exports to the EU of fuels (51.9%) and food products (33.8%). West Africa’s imports from the EU consist of fuels (28.6%), food products (12.0%), machinery (26.7%), and pharmaceutical products (12.5%).
Hence, in the short-term, after the currency change, the EU will likely continue to source agriculture products from African monoculture productions thanks to established contracts and policies that Brussels has been implementing in the last decades. At the same time, the EU will continue to subsidize some EU production and export them to developing countries through the EU Common Agricultural Policy (CAP). Secondly, several European multinational companies will continue to operate in this region. In the energy sector, many French and EU firms are exploiting the resource-rich underground of the former colonies: uranium in Niger, natural gas, and oil in Nigeria, Côte d’Ivoire, and Senegal.
In the longer-term, the new currency will likely lead to a decrease in the trade flows between these countries. This will decrease the dependency link. In fact, due to the lost currency fixed parity, at the end of current business contracts, it will be easier for West Africa to source their imports worldwide and to sell their monoculture agriculture productions to different buyers. At the same time, the ECOWAS countries will likely open up the current extractive “monopolies” to other developed countries. For example, China has been highly interested in Niger’s uranium and it has recently opened a mine in the northern part of the country.
Thus, the economic relationships will likely change in the medium- and long-term. In order to be preserved, EU influence over those countries will change its nature. This will have policy implications on security, foreign policy, and aid.
Security and Peace
In the security sector, the EU and its different Member States are highly involved in military operations in the Sahel, the territories below the Sahara Desert. The engagement in these operations to fight jihadists and to safeguard the local states will likely continue and increase. This is due to both EU’s and its Member States’ will to perpetuate their influence in the area and to securitize Africa.
France is currently engaged in the anti-jihadists fight with operation Barkhane with 4.500 soldiers at its launch in 2014. In the operation, there are also British, Estonian, and Danish troops involved. In MINUSMA, United Nations Multidimensional Integrated Stabilization Mission in Mali, the EU’s Member States are again participating to a large extent. Overall, there are estimates that the EU and its Member States have spent €8 billion on military development assistance in the Sahel between 2014 and 2020 and has recently committed for more capacity building and training in the upcoming years with EUCAP Sahel Mali and EUTM Mali. Moreover, Germany has just renewed its mission in Mali called Bundeswehr until 2021. The Bundestag has extended it declaring that the jihadist threat in the country is still very high.
Political Relationships and Policy Implications
The above-mentioned European Union militarized foreign policy significantly affected the EU political relationships with African leaders. Historically, France is the former colonial power over most ECOWAS countries, and it has been in close relations with political authorities in this region. This has helped to perpetuate the dependency mechanism throughout the decades. To bring validity to the argument, France strategized an easy deployment of its “national diplomatic corps, including the presidency”, for example to guarantee its bargaining power over Niger in their uranium negotiation. In 2009, President Sarkozy made a diplomatic visit to Niamey, Niger’s capital, to ensure that Areva, the French nuclear electricity company, would have secured the contract for a new mine after China threatened it. An approach that could be called realpolitik, i.e. political or diplomatic pragmatism in pursuing policies.
Beyond the economic benefits of these EU-ECOWAS political relationships, the European Union benefitted from the situation in migration management terms. Among other sub-Saharan African countries, these states are countries of both transit and origin of a high number of migrants directed towards the European Union. To cope with this issue, the EU Commission adopted the so-called “concentric circles” policy to cluster the different problems arising from extra-EU migration. According to the policy, the ECOWAS countries and, especially, the Sahelian ones should eliminate the migration push factors. Local leaders close to the EU political direction will be key to the success of this policy.
In the perspective, the collaboration among political leaders has been promoted also by aid and development policies implemented by the EU towards African countries. In the last decades, the EU invested resources in Africa through bodies such as the European Development Fund (EDF) and the EU Emergency Trust Fund for Africa. In the years between 2014 and 2020, the EDF implemented development policies for €30.5 billion, with main recipient Sub-Saharan countries. In 2017, the European Parliament reiterated the importance for the Member States to commit to development policies in Africa. Among other commitments, the “Motion for a European Parliament Resolution on the EU-Africa Strategy: a boost for development (2017/2083(INI))” reported that “Member States have to fulfil their commitment to direct 0.7 % of their GDP to official development assistance to strengthen cooperation with Africa”.
The aid and development funds will likely increase for two reasons. Firstly, as discussed so far in the article, the EU will utilize the aid tool to reshape its influence over the West African territories due to both a forecasted decrease in the monetary and trade dependence. Secondly, in the aftermath of the COVID-19 pandemic, the EU will increase its development programs in these countries to counterbalance the Chinese influence over the continent, whose investments in sub-Saharan Africa over the past ten years have amounted to €247 billion. Indeed, it could be argued that if the dependency mechanism will likely decrease by on the monetary and trade side, it could increase due to aid policies that could foster a new dependency link with West African countries to ensure political collaboration between states.
To conclude, since 1960 France decolonized West Africa but implemented mechanisms to guarantee its influence over those states, the so-called “Francafrique”. One of these means has been a monetary one. The West African CFA franc currency originated after the Second World War and it is still existing. Recent policy amendments of the ECOWAS Union are anticipating the transition to a new currency called Eco. On the 20th of May 2020, the French Council of Ministers resolution set this currency to be independent of the French Treasury and from its “golden share” power. Moreover, it will likely lose the fixed value with the euro due to Nigeria’s strong political will. Therefore, Eco will be also independent of the European Bank Monetary policy.
The EU influence over the region will be reshaped. Firstly, it will change in economic and trade terms affecting the longer-term EU multinational companies’ businesses in the region. Extractive monopolies will be opened up. At the same time, the EU will perpetuate its African securitization policy. It will continue its military operations, which are far from complete. The presence of separatist and terrorist groups is a high-security threat to the local fragile Sahelian states. Finally, in this highly militarized context, political relationships between ECOWAS and EU leaders will continue with consequent policy implications on migration and aid. On the migration side, these renewed political relations will play a role to ensure collaboration with local authorities to manage extra-EU Sub-Saharan migration. On the aid side, development and aid policies will become both a broader foreign policy instrument and a tool to perpetuate a dependency link between the two continents.