Facilitating West African Monetary Integration through the ECOWAS

By Samuel Matthews

For decades, there have been hopes for a greater degree of monetary integration across West Africa. The establishment of a currency union for the Economic Community of West African States (ECOWAS) would significantly impact the region’s macroeconomic situation and therefore its development. The continent is no stranger to currency zones: although it receives less attention than the larger Euro zone, the CFA franc zone covers fifteen countries with a total population of about 150 million. It was established by France in 1945 for its then-colonies, but the system survived the colonies’ independence. Initially pegged to the French franc, the CFA franc has been fixed to the euro since 1999 at a rate guaranteed by the French Treasury. There are two monetary unions that use the CFA franc: the West African Economic and Monetary Union (WAEMU) and the Economic and Monetary Community of Central Africa (CEMAC). The further monetary integration of West Africa has the potential to promote the region’s economic growth leading to rising living standards for its people.

For the eight member states of WAEMU, the CFA franc has been a source of both monetary stability and controversy. Compared to their neighbors, the nations of WAEMU have generally experienced lower rates of inflation and benefitted from the fiscal restraints imposed by the arrangement. This stability promotes trade and investment from Europe. But many of their citizens, particularly young people, have increasingly expressed dissatisfaction with what they see as a form of French neocolonialism. There are concerns among academics that the parity between the CFA franc and the euro has been set to “make France’s market the exclusive outlet for her former colonies’ raw materials.”

Along with seven additional West African nations, WAEMU members are also part of ECOWAS. Since its creation in 1975 with the Treaty of Lagos, there have been plans for the creation of an ECOWAS currency zone. These aspirations solidified in the form of the eco, a common currency that would replace the CFA franc and include all fifteen members of ECOWAS. Although its creation has been delayed many times over the last twenty years. In June 2019, ECOWAS announced plans to implement the eco by the end of 2020. However, Covid-19 and regional rivalries brought further delays. The pandemic is predicted to delay the implementation of the eco by three to five years. Perhaps even more important is the lack of agreement about what form the eco zone would take. At the beginning of 2020, WAEMU President Alassane Ouattara and French President Emmanuel Macron jointly announced reforms to the CFA franc that would decrease French involvement and involve renaming it to the eco – without input from the rest of ECOWAS. This prompted protest from prominent anglophone nations like Nigeria who want even less French involvement in the eco. For example, Ghana has proposed dropping the peg to the euro altogether.  

Photo by ISSOUF SANOGO / AFP) (Photo by ISSOUF SANOGO/AFP via Getty Images)

Clearly, there is momentum behind the establishment of the eco. Even though serious questions remain about the system that would replace the CFA franc, it seems likely that it will be implemented sometime within the next ten years. This means that it is important to consider the ways in which West Africa’s monetary integration can be better facilitated. A common currency is no guarantee of stability; the history of the euro zone is proof enough of this. Therefore, ECOWAS should simultaneously pursue policies to ease this transition by simultaneously pursuing fiscal integration, embracing currency digitalization, and adopting a sound industrial policy.

Recommendations for the Transition to Monetary Integration

  1. Fiscal Integration

Fiscal integration is one of the criteria for optimal currency areas. It is necessary to allow for the redistribution of resources between zone members. During times of crisis, weaker states can receive support from more stable economies, promoting the wellbeing of the currency zone as a whole. There are serious concerns that Nigeria would dominate the eco zone as it represents 67 percent of ECOWAS GDP. If the eco loses the peg to the euro, Nigeria’s exposure to volatility through oil revenues would threaten the stability of the eco’s exchange rate. A centralized fiscal body would promote the efficient use of public resources as well as convergence which would help to ameliorate these concerns. Such an institution would work alongside the zone’s central bank to coordinate monetary and fiscal policy. These fiscal links would also improve the zone’s ability to collectively respond to crises, particularly in the face of evidence that there is a low degree of correlation between how the nations of West Africa experience shocks.  

  • Currency Digitalization

As West Africa contemplates monetary integration, it should take advantage of the benefits of currency digitalization. The use of digital currencies is not foreign to the region. According to one survey, Nigeria has the world’s highest rate of adoption of cryptocurrencies, which are used to avoid high transaction costs when sending remittances. In December 2016, Senegal became the second country in the world to launch a national digital currency. As Senegal is a member of WAEMU, the “eCFA” is equivalent to the CFA franc in value. The adoption of a digital eco would strengthen the transition to a unified currency zone and yield important benefits to the members of ECOWAS, including reduced expenses from handling cash, financial inclusion, and a more responsive monetary policy. There would be challenges, however, as West Africa was slower to adopt mobile banking than East Africa. Only 6 percent of Nigerians use their phones for mobile transactions compared to 73 percent of Kenyans. However, Covid-19 has served as a catalyst for digital finance in the region. Maintaining this momentum, ECOWAS should build upon existing progress and architecture to adopt a digital eco.  

  • New Industrial Reforms

Addressing the serious structural challenges facing the region’s economies will promote growth and macroeconomic stability, providing a healthy environment for the adoption of the eco. Alongside fiscal integration and currency digitalization, it is essential that ECOWAS adopt an integrated industrial policy to confront these barriers to development. Skills-based education programs, infrastructure development, and regulatory reform to attract foreign investors are all examples of what this industrial policy might entail. West Africa suffers from a lack of industrialization. In 2019, the nations of West Africa only averaged 13.9 percent of employment in industry, compared to 20.3 percent for Latin America and 25.6 percent for East Asia, two regions with significantly greater levels of development. Successful structural transformation typically entails the movement of labor from primary commodity production to manufacturing and then from manufacturing to services. Yet many African economies have “leapfrogged” from agriculture straight to employment in low-productivity services like retail have limited potential for sustainable growth.

As the history of other currency zones demonstrates, the monetary integration of ECOWAS is not sufficient to secure sustainable growth. The eco should be accompanied by fiscal integration, currency digitalization, and industrial reforms. These policies are interdependent. By reducing exchange rate risk, a stable monetary policy promotes exports, which then fuels the growth of industry in countries with limited domestic markets. As policy makers recover from the effects of Covid-19 and look towards the implementation of the eco, they must prepare an integrated growth strategy that addresses the multifaceted challenges facing the region.

Samuel Matthews was a spring intern 2021 on the Project on Prosperity and Development at CSIS.

Anticorruption in Uzbekistan: An Opportunity for American Engagement

Author: Christine Li, Research Intern (Spring 2021), Center for Strategic and International Studies

Photo Credits: Giorgio Montersino, “Mother Russia Hotel,” https://www.flickr.com/photos/39442289@N00/1055047184.

An extravagant castle in France, a shell company in Gibraltar, and a Swedish telecom company may seem to be disparate things. However, they weave together as integral parts of an elaborate scheme to amass wealth and power – with Gulnara Karimova at the center. When her father (former Uzbek President Islam Karimov) was in power, Karimova used her status to extort billions for her own personal coffers, even creating her own transnational organized crime group. Known as “the most hated person in Uzbekistan,” she is now serving a 13-year prison sentence. Although this case represents one of the most egregious manifestations of corruption in Uzbekistan, other cases of endemic corruption have siphoned millions from Uzbekistan’s development.

Gulnara Karimova’s actions were indisputably horrific. However, her fall from grace created a rare opportunity for governance reform in Uzbekistan—she was no longer her father’s intended successor after her arrest in 2014. With his death soon after in 2016, power was transferred to Shavkat Mirziyoyev, for the first time in the country’s post-Soviet history.

The aftermath of a historic transition

Considering Mirziyoyev’s 13 years as Karimov’s Prime Minister, one may have rightfully expected little to change. But Mirziyoyev has shifted course from the closed-off, repressive regime of his predecessor. For instance, Mirziyoyev restrained the security forces to a certain extent, while also taking major steps to liberalize the state-run cotton industry. The International Labour Organization recently reported that “the systematic and systemic use of child labour and forced labour in Uzbekistan’s cotton industry has come to an end, although some local vestiges still remain.” The government has also eased currency controls and increased trade with neighbors, boosting flows by 11.3% in only the first year post-transition and marking an era of greater economic liberalization. More broadly, Mirziyoyev recently affirmed his commitment for a more open foreign policy agenda, focused on multilateralism and development cooperation

Beyond this litany of reforms, Mirziyoyev has also prioritized addressing his predecessor Karimov’s pervasive patronage system that forged a cadre of loyal oligarchs. In fact, Mirziyoyev’s first law was titled, “On Combating Corruption,” and provided the first major framework for addressing corruption in Uzbekistan. His government has since continued this momentum for over four years with initiatives, such as the 2018 law “On Public Procurement” and the creation of the Republican Inter-agency Commission on Combating Corruption. Most recently, the government established the landmark Anti-Corruption Agency  in June 2020, further institutionalizing anticorruption efforts.

Considering his ties to Islam Karimov, his somewhat inconsistent expansion of rights and freedoms, and significant pushes for a more liberalized economy, some believe that Mirziyoyev’s moves are more focused on maintaining his power over improving long-term governance conditions for the Uzbek people. However, even if his true intentions differ from his public messaging, these reforms provide some of the first opportunities in Uzbekistan’s post-Soviet history to institutionally cement major change.

Ongoing corruption struggles

Despite changes, there is also evidence that Mirziyoyev is perpetuating corrupt practices within his closest circles, appointing family members to highly influential positions and selectively enforcing anticorruption laws. Journalists exposing corruption have also continued to come under fire from government forces, and international outcry has recently emerged over the six and a half year imprisonment of anticorruption blogger and activist Otabek Sattoriy.

The 2020 Sardoba Reservoir Dam collapse that killed six people and displaced another estimated 70,000 provides an important case study of corruption in Uzbekistan. Though a taskforce was quickly established, there were major conflict of interest issues—the senator in charge was found to have possible business connections and was responsible for awarding construction contracts for the dam. Even more concerning, a closed-door trial recently handed down four to ten year sentences for 17 defendants whose relatives believe that they are scapegoats for larger officials responsible. Considering these ongoing problems, it is no surprise that Uzbekistan ranks 146 out of 179 countries on the 2020 Corruption Perceptions Index.

Mirziyoyev’s reforms are also creating new opportunities for corruption. In a push to demonstrate Uzbekistan’s growth and potential for investment, developers have begun a number of mega-projects with debatable transparency. The Tashkent City project, worth $1.3 billion, underwent an extremely opaque tendering process, and many companies involved in the project were tied to the Akfa-Artel group, founded by the Mayor of Tashkent himself. There has also been a substantial push for privatization, with an ambitious 2020 Presidential Decree for nearly 3,000 state-owned enterprises to be partly or fully privatized. However, there are reports that foreign investment attached to this privatization is “suspiciously circular,” possibly reaping economic benefits for elites within Uzbekistan who have brokered deals with government actors.

Externally, Covid-19 has also increased opportunities of corruption. A greater amount of foreign assistance and credit has created new Covid-19-related programs and, respectively, more opportunities for officials to siphon off money.

Three levels of engagement opportunities

Given these ongoing corruption problems, the U.S. should take advantage of President Mirziyoyev’s public stance on fighting corruption and pursue greater anticorruption cooperation with Uzbekistan. The U.S. and Uzbekistan have already substantially increased cooperation since 2016, with foreign assistance obligations more than doubling from $19.7 million in 2016 to $47.1 million in 2019. In October 2020, USAID also announced the creation of a bilateral mission in Uzbekistan. The initial press release emphasizes the role of USAID in “strengthening private business, non-governmental organizations, and independent media,” providing a beneficial opening. An overarching first step for engagement should be enshrining distinct anticorruption provisions within the next USAID five-year country development cooperation strategy (CDCS). By directly enshrining anticorruption as a priority, the U.S. will have greater latitude and possibly political will from the Uzbek government to undertake ambitious plans.

Strengthening institutions

After framing, the U.S. should prioritize strengthening institutions relevant to anticorruption reforms, beyond the executive branch. With existing concerns on Mirziyoyev’s anticorruption intentions, strengthening both prevention and enforcement institutions, such as the Oliy Majlis (parliament), judiciary, and the Anti-Corruption Agency can help lay foundations for a strengthened anticorruption ecosystem that can more likely hold its own, even after Uzbekistan’s national development strategy for 2017-2021 expires.

The fledgling Anti-Corruption Agency should be a priority institution. Created less than a year ago with relatively few legal mandates, the U.S. has a major opening to shape a powerful anticorruption mechanism. USAID could support foundational best practices through providing technical support for the agency’s early work in “designing an internal anticorruption control system,” monitoring staffing, and drafting future anticorruption legislation. Considering that the weakness of specialized state anticorruption agencies has hindered the success of previous U.S. anticorruption initiatives, this initiative will also be a worthy investment for future anticorruption endeavors. Another benefit of investing in the Anti-Corruption Agency is that implementing reforms may face less enshrined pushback than other institutions, as Uzbek judges and legislative members have traditionally benefitted from the spoils of corruption.

However, because the Anti-Corruption Agency is officially accountable to the legislature, reports to the President, and relies on the judiciary for binding enforcement, its power is still contingent on the strength of other institutions. Thus, the U.S. should also invest in the Oliy Majlis and judiciary. This diversified strategy for institutional strengthening will also prevent anticorruption gains from being easily undone at the behest of executive political whims. The Oliy Majlis is traditionally quite weak, but under Mirziyoyev, powers have expanded to some degree. Building on this tide, the U.S. could work with the National Democratic Institute and the International Republican Institute, common U.S. non-profit implementing partners with a legacy of legislative strengthening, to open projects in Uzbekistan as institutional reforms may be difficult to pursue directly between government actors. While working with local civil society actors would be ideal, the lack of formalized, independent organizations may pose challenges. On the judiciary, the U.S. should continue past efforts, such as digital transformation of the judicial system for transparency.

Increasing transparency and accountability in daily governance practices

Tendrils of corruption reach down to the most local levels of government in Uzbekistan. As such, changing daily practices can dramatically improve petty corruption conditions. One strategy is encouraging digital transformation, building on USAID success in Ukraine and India. As emphasized in USAID’s recent digital strategy, digital platforms can help streamline government processes and remove opportunities for corruption. Uzbekistan has already shown great appetite for digitalization, implementing a “Single Window” digital information system at all border customs posts last September and passing a decree last April on introducing digital procedures in procurement bidding.

Digital transformation should also include efforts to increase citizen accountability mechanisms. Under Mirziyoyev, Uzbek citizens have steadily gained internet access, and USAID could implement programs similar to the Civic Action for Accountability Project in Serbia that provides grants for local anticorruption leaders, organizes public events, and creates an online platform for anticorruption civil society leaders. Furthermore, the U.S. could encourage the creation of a digital citizen-led corruption reporting mechanism or provide accountability opportunities through increasing digital budget and procurement data availability.

There is also room for U.S. technical assistance and oversight on Mirziyoyev’s privatization push of state-owned enterprises. Building on the Terms of Reference signed between the Treasury Office of Technical Assistance and the Uzbek Ministry of Finance in 2019, another iteration could be pursued with a distinct focus on proper privatization of state-owned enterprises, or other U.S. agencies with relevant experience could pursue a similar agreement.

Leveraging multilateral support mechanisms

The U.S. should also work with multilateral partners to generate support and resources for anticorruption reform in Uzbekistan. While Covid-19 has increased opportunities for corruption, calls for international recovery also provide unprecedented resource pools to “build back better”—over $21.3 trillion worldwide. Similar to calls for a “green recovery,” the U.S. could encourage the inclusion of anticorruption considerations in a wide swath of recovery projects led by multilateral development banks, ranging from infrastructure to health system strengthening. Uzbekistan also received $375 million from the IMF last May under the Rapid Credit Facility and Rapid Financing Instrument, and a commitment on anticorruption reform featured as a part of the discussions. If Uzbekistan seeks further financial support from the IMF, the U.S. could encourage the IMF to consider providing finances contingent on anticorruption progress and action from conditions at the time of the previous agreement.

On a more political level, the UN General Assembly Special Session on Corruption is coming up in June 2021. Uzbekistan has yet to submit public contributions ahead of the assembly, providing one immediate area for cooperation. A political declaration is also likely to result from the session, and the U.S. could offer to support Uzbekistan in implementing any results.

Importance of anticorruption efforts in Uzbekistan

Supporting anticorruption in Uzbekistan is not good governance for good governance’s sake. Pervasive corruption prevents substantial and sustainable development from occurring by removing funds to improve citizen livelihoods, eroding public trust in government, turning away prospective international partners, and continuing inefficiencies. Furthermore, the government should be wary of the consequences of neglecting corruption, especially Mirziyoyev himself as he faces presidential elections in October. An increasing number of major protests on corruption increasing globally and a recent string of protests within Uzbekistan on the government’s inability to provide heat and electricity, provide alarming foreshadowing. Looking ahead, Uzbekistan will also have to contend with longer-term issues for the economy—issues that may necessitate a reduction in corruption for meaningful change and stability, such as rural-urban inequality and a growing youth population.

The U.S. also has multiple incentives for countering corruption in Uzbekistan. Corruption is emerging as a foreign policy priority, and both Secretary of State Antony Blinken and incoming USAID Administrator Samantha Power have emphasized addressing this global “Achilles heel.” Engaging on anticorruption in Uzbekistan could provide an early and quick win for the Biden Administration as there are distinct opportunities for cooperation and some form of pre-existing political will. Addressing corruption also supports U.S. business interests in the region. Corruption has long deterred U.S. companies from investing in the region, for fear of prosecution under the Foreign Corrupt Practices Act or uncertainty surrounding the general business climate. Lastly, increasing engagement with Uzbekistan serves U.S. national security interests. Uzbekistan is an integral part of China’s vision for the Belt and Road Initiative, and the most recent Interim National Security Strategy calls for the U.S. “to lean forward, not shrink back” against major challenges and adversaries, including China and Russia. With citizen dissatisfaction toward China mounting in Uzbekistan, this tide of anticorruption reform may be a rare opportunity for the U.S. to increase engagement, promote democratic values, and hedge growing Chinese and Russian influence in the region from an alternate angle—before it is too late to even consider this path.

Christine Li was an intern with the CSIS Project on Prosperity and Development and an undergraduate student at Harvard University studying economics.

Post U.S. Exit: Agriculture Can Power Women’s Growth in Afghanistan

Author: Hannah Davin, Research Intern (Spring 2021), Center for Strategic and International Studies

Photo: WAKIL KOHSAR/AFP/Getty Images

On April 14, President Biden announced that the U.S. would begin a sequential withdrawal of all troops from Afghanistan. The original U.S. – Taliban Peace Deal, signed in February 2020 under the Trump administration, called for a complete and immediate U.S. military exit by May 1. To uphold the original agreement while achieving full withdrawal of the remaining 3,500 troops in Afghanistan by the Biden administration’s target date of September 11, the administration will begin the withdrawal process on May 1. In coordination with the U.S. military, NATO has also announced foreign troops under its command will complete their full withdrawal by September 11. 

While Biden’s decision to leave Afghanistan may signal ending the “forever war,” there are a growing number of concerns that a final withdrawal will allow the Taliban and other insurgent groups to expand their jurisdiction and hinder the country’s significant political and economic gains. Furthermore, there are concerns that the exit of foreign troops will be a catalyst for notable regressions in human rights, specifically those for women and girls. Women’s rights in Afghanistan have improved substantially over the last two decades. Even so, many believe that the retreat of the U.S. military could negatively impact women’s employment rates, education, and healthcare outcomes. As the U.S. prepares to leave Afghanistan, the Biden administration should take measures to ensure stability and prevent insurgent groups from ascending to power. Policy initiatives that promote women’s rights and participation in the economy would be instrumental in this regard, primarily in the sector that employs a large majority of the nation’s workers: agriculture. Ideally, this would take the form of more opportunities and provisions for women in the sector.

Currently, women who work in Afghanistan’s agriculture sector face numerous challenges. While approximately 42.50 percent of Afghanistan’s population is employed within the sector, it is Afghan women that power its broad-based success. According to the World Bank, in 2019, 64.96 percent of those employed in agriculture were women compared to only 36.60 percent of men. Women’s main activities in the agriculture sector typically involve unpaid, arduous labor such as weeding, watering, and harvesting. Women are also primarily responsible for breeding livestock and for a majority of the tasks related to animal caretaking and upkeep. While women are responsible for a majority of the sector’s makeup and production activities, they are seldom able to participate in market ventures such as the buying and selling of produce and seeds. These positions are disproportionally reserved for men. This suggests that men hold a majority of the power in the sector and typically oversee the relationship between the household and the market.

Due to a lack of both education and funding, access to agricultural capital and land for women with entrepreneurial or self-sustaining ambitions remain largely unattainable in Afghanistan. Women in Afghanistan typically do not have access to land rights, even if they have inherited land or it has been legally allocated to them. When women are successfully able to own land and run farms, unfortunately their crop yields are 20 to 30 percent lower than those of farms run by men.

Providing equitable agricultural opportunities for women in Afghanistan has the potential to create new opportunities for women while it boosts GDP and rates of employment and improves the country’s human rights record. However, a hasty U.S. departure coupled with a potential expansion of Taliban control will likely make it more difficult to provide opportunities for women that enable them to make social and economic gains. To protect and expand the rights of women and girls and advocate for their participation in the economy, the Biden administration should look to create opportunities through policies and programs within the agricultural sector as it implements a more gradual withdrawal.

Women’s empowerment in agriculture starts with a restructuring of government policy. Strong laws and policies designed to ensure that women are allowed to contribute to the economy and to validate their status and rights as workers will be essential first steps. In Afghanistan’s agriculture sector, four out of every five female rural workers are considered “unpaid family workers”, compared to only one in five men. It is essential that women participate in local markets and receive agricultural training. Women’s economic opportunities must be expanded through increased access to value chains and regional and national production networks.

Much of women’s economic participation in agriculture remains within Afghanistan’s informal economy as women continue to remain “economically engaged but not economically empowered.” The provision of agricultural skills and marketing training must be prioritized for both women and youth. This could be achieved by providing agricultural courses that are sensitive to the obstacles women face every day, both in Afghanistan’s economy and within the sector itself. It is also evident that women should have the opportunity to own land and run their own farms. Achieving this goal will require removing barriers that do not allow women to obtain personal identity information, as a lack of documentation further restricts their rights to secure land and property.

Incorporating sustainable agricultural practices into Afghanistan also has the opportunity to provide economic sustenance for women. Targeted agricultural courses can teach sustainable farming practices including new planting techniques, tree disease prevention, and proper irrigation methods. In Afghanistan, 30 to 60 percent of harvested fruits and vegetables are lost due to insufficient transportation and temperature control. This can be addressed with solar food dryers which are capable of saving 50 to 70 kilograms of produce in three to five days on a small plot of land. Other agricultural initiatives, such as micro-greenhouses, may be able to reduce the unemployment rates of women during the agricultural off season. For example, in the past, unemployment rates in Afghanistan have increased to 44 percent in the winter up from 20 percent during the summer in rural areas.  Micro-greenhouses provide a way to empower women by providing a source of income during the winter months, as women can cultivate this produce for market as well as for their own consumption.

It is also important for development agencies to continue their work on projects that empower the women already employed in Afghanistan’s agricultural sector. The Afghanistan Rural Enterprise Development Program (AREDP) and the National Horticulture and Livestock Project (NHLP) are two examples of development projects benefitting Afghanistan’s agriculture industry. The AREDP in particular establishes small-scale enterprises in six districts in the Parwan Province. Of the 868 savings groups established by the program, 488 were for women, enabling them to run small enterprises. Furthermore, the NHLP project has helped over 390,000 male and female farmers. The project focuses on improving access to technology and providing trainings on best agricultural production practices, post-production practices, and how to gauge markets.

As U.S. and NATO troops leave Afghanistan, protecting the rights of women and girls is of paramount importance. Facilitating women’s participation in the agriculture industry, through strong government policies and sustainable agricultural initiatives, has the potential to be an effective means of addressing this priority. Providing opportunities and making space for women in Afghanistan’s agriculture sector opens new doors for economic opportunity, trade, and human rights outcomes. Through an emphasis on stronger sectoral engagement, better access to markets, and the implementation of sustainable agriculture practices and programs, steps can be taken towards sustaining the country’s agricultural sector and furthering gender equality in Afghanistan after the departure of foreign troops and for years to come.

Hannah Davin is a Research Intern for the Project on Prosperity and Development at the Center for Strategic and International Studies, a DC-based think tank. She is a graduate of the University of Massachusetts Amherst where she studied Environmental Science and Public Health. She has previously worked for WE ACT for Environmental Justice and the U.S. House of Representatives.