Alassane Ouatara is in a hurry to float the Eco as replacement for the CFA franc. The CFA has been used in Benin Republic, Burkina Faso, Cote d’Ivoire, Mali, Niger, Senegal and Togo since 1945. Guinea Bissau eventually joined the West African Economic and Monetary Union (WAEMU), the CFA monetary zone, after it obtained independence from Portugal in 1973.
Of the 15 countries in the Economic Community of West African States (ECOWAS), only four are former British colonies. They are Nigeria, Ghana, Sierra Leone, and the Gambia. Liberia is an Anglophone country by virtue of being founded by freed slaves from the United States of America. It is the fifth Anglophone country in ECOWAS.
Ironically, Ouatara, the president of Cote D’Ivoire wants Eco to be floated hurriedly to replace the CFA franc. The issue has sparked off a huge controversy in ECOWAS. Nigeria and the rest of the Anglophone countries along with Guinea see the floating of the Eco as a long term project. It would be the currency of the whole sub-region.
Ouatara wants the Eco floated this year as replacement for the CFA. That move implies that the Eco is the currency of the Francophone bloc.
The situation is worsened by the rather impudent and infantile invitation of Nigeria to join WAEMU.
Ouatara is something of a usurper. By giving the name Eco to the currency that would replace the CFA, he has stolen ECOWAS copyright. The sub-regional bloc selected the name decades ago for the currency that would eventually herald its monetary union.
The invitation extended to Nigeria is arrant insult. Nigeria’s economy constitutes 75 per cent of ECOWAS. Nigeria cannot reduce itself to that level of diplomatic and monetary ineptitude by accepting the invitation.
Nigeria must initiate necessary legal or diplomatic actions to regain the stolen brand name from the 17th century pirates in Abidjan.
WAEMU should choose another name for its currency. No one stops the bloc from floating something that would replace the rather enviable CFA which had been managed in the last 75 years with admirable monetary and fiscal policy dexterity that made it dwarf the naira.
Ouatara’s cantankerous posture toward the hurried floating of the Eco has brushed aside key issues that would make it extremely difficult for the Eco to emerge as ECOWAS common currency.
Five key criteria have been listed as basic requirements for the convergence. The first is that inflation rate in participating countries must not be more than five per cent. The second is that the national debt to gross domestic product (GDP) ratio of each member must not exceed 70 per cent.
As a third requirement, member countries are expected to maintain a maximum budget deficit of three per cent of GDP. The fourth is that each member’s foreign reserves should be able to fund three months import bill.
Finally, member countries are expected to attain tax to GDP ratio of 20 per cent. Ouatara is rushing against all odds in his desperate bid to float the Eco this year. He knows that only the diminutive Republic of Togo probably can fulfill the five key requirements for the monetary union at the moment.
Even Cote D’Ivoire, Outara’s El Dorado is three percentage points below the required tax to GDP ratio.
Nigeria, the giant of the sub-regional bloc and Africa’s largest economy, is light years behind the requirements for the Eco monetary union. The only thing going for Nigeria in the Herculean task of entering the monetary union is its deceptively low debt to GDP ratio and size of foreign reserves. Nigeria’s debt to GDP ratio hovers around 25 per cent. Its foreign reserves can fund seven months import bill.
However, Nigeria is in deficit in almost all other requirements for entering the monetary union. Nigeria’s tax to GDP ratio is atrociously low at 6.5 per cent. Ironically, Nigeria may need 10 years of consistent investment in decaying infrastructure to be able to address its low tax to GDP ratio.
Power supply in Africa’s largest economy is embarrassingly epileptic. On some frenzied days, Nigeria generates a scant 2, 900 megawatts (mw) of electricity for a population of 201 million. That explains why power supply constitutes 20 per cent of manufacturers cost of production.
Federal roads in Nigeria are in advanced stage of disrepair. Lagos-Abeokuta highway, an international road leading to ECOWAS is in such a bad shape that even beggars who used to solicit for alms at traffic bottlenecks on failed portions of the road have relocated because the motorists who use to give them alms can no longer navigate the huge craters dotting the numerous failed sections of the road with their cars. Only trucks and few commercial buses dare to enter the road.
The consequence of the deplorable roads is that cost of haulage constitutes something close to 20 per cent of the cost of doing business. With epileptic power supply and deplorable roads constituting close to 50 per cent of the cost of doing business, no one in the federal government has the effrontery to confront the private sector with meaningful tax increase. Besides, Nigeria has the lowest value added tax (VAT) rate in ECOWAS.
The situation would remain so for a pretty long time because no one in the federal government knows how to raise $10 billion for construction of new roads and $2 billion for maintenance of old ones annually.
Nigeria’s unwieldy informal sector is a huge disincentive for tax collection. The Federal Inland Revenue Service (FIRS) has identified more than 6, 000 billionaires who are chronic tax evaders.
The last time Nigeria recorded single digit inflation rate was in 2011.
At the moment, Nigeria’s inflation rate is sailing perilously close to 13 per cent. Everyone expects it to climb, rather than descend.
Besides, Nigeria is a horrendously bad manager of currency. The naira traded in the parallel market at N90 to the dollar during the return to civil rule in 1999. Last week it was tottering at N420 to the dollar. The naira depreciated even when oil price averaged $105 per barrel. There are fears that the naira’s depreciation contagion might infect the Eco.
Alassane Ouatara has the temerity of Lagos mini bus (danfo) drivers who are too impatient stop for their passengers to enter or disembark. He expects his passengers to run and jump into the bus while it is on motion. The Anglophone countries in ECOWAS are not in such a hurry. Consequently, the president of Cote D’Ivoire might head to his destination with an empty bus.