- Burkina Faso, Niger and Mali announced their withdrawal from Ecowas on Sunday
- The three countries may yet leave the West African CFA franc
- Local banks will face lower profitability, but the impact on regional players is likely to be negligible
The loss of an economic member of the Economic Community of West African States can be considered a misfortune. Losing three of the economic bloc’s 15 members on the same day looks like a recipe for deepening regional economic and political instability.
The withdrawal from Ecowas of Mali, Niger and Burkina Faso — which in September formed the Alliance des États du Sahel, or AES — threatens to further weaken economic growth in the three Sahel nations, which already rank among the poorest in the world and undermines vital regional efforts to counter a rising tide of Islamist violence across the region.
The move also represents a turning point for Ecowas, sub-Saharan Africa’s third-largest economic bloc. While the potential departure of three of its poorest members will likely have little impact on its overall economic cohesion — or indeed on the region’s biggest banking groups — experts are wondering whether the move could prompt the bloc to accelerate economic integration among its remaining members. of, or wait out the crisis and hope that they will return to the fold.
Deterioration of the relationship
The withdrawal decision announced on Sunday by the three AES nations, which was confirmed by official statements to Ecowas from Mali and Burkina Faso the following day, comes amid a steady deterioration in relations with the bloc. All three countries had previously had their membership suspended after democratically elected leaders were ousted in a series of coups over the past four years.
Relations between Niger and Ecowas have become particularly strained since the country’s democratically elected president, Mohamed Bazoum, was ousted in a military coup in July. The bloc responded by imposing trade sanctions on the country, stifling imports and sending food prices skyrocketing, and threatening military intervention to restore Bazum’s government, a threat that has so far not materialized.
In their joint statement on Sunday, the three states accused Ecowas of coming “under the influence of foreign powers, betraying its founding principles” and that the body had become “a threat to member states and peoples”.
“The three military regimes have found it politically convenient to position themselves against Ecowas and claim that it is a tool of the West in order to undermine its credibility,” says Paul Melly, an adviser to Chatham House.
“Their withdrawal is ultimately a political gesture that gives little thought to the economic and development financing implications.”
The withdrawal of the three landlocked countries from Ecowas – which technically requires a year’s notice – would severely disrupt trade between the three countries and the West African coastal countries they rely on for exports and imports, Sayen Gohil said. analyst with BMI.
“Mali is highly dependent on imports from Ecowas, which accounted for 34.9% of Mali’s merchandise imports in 2022 [see chart]and therefore we have revised Mali’s average inflation forecast for 2024 upwards to 5.5%, against our previous expectation of 1.5%,” it said in a research note issued on Monday.
S&P Ratings notes that Burkina Faso depends on the ports of Cotonou (Benin) and Lomé (Togo) for international trade, which puts it in a difficult position should it eventually leave the bloc.
While Gohil notes that some trade from all three states can be re-routed through the coastal state of Guinea – the same was suspended by the bloc from 2021 following its own military coup – the loss of both access to Ecowas’ large single market and the freedom of movement that joining the bloc entails will have dire consequences for the three economies, warns Melly.
“These countries are already suffering from serious economic challenges and are relatively uncompetitive against their coastal neighbours. Leaving Ecowas will not bring any improvement to these challenges and will likely make them much worse in the medium term,” he says.
Bank blues
At the time of writing, Burkina Faso, Mali and Niger have yet to signal any intention to withdraw from the CFA franc, the European-linked currency used by the three states and the other five members of the Economic and West African Monetary Union or UEMOA, a separate body for Ecowas.
However, local media reported in November that the finance ministers of the three states had issued a joint statement recommending that the issue of economic and monetary union be referred to a committee of experts, with a common stabilization fund and a regional investment bank among other proposed measures.
Such announcements have fueled local rumors that the three countries may leave the CFA franc, says Ada Ufomadu, head of financial institutions at GCR Ratings in Lagos, Nigeria.
Burkina Faso has so far retained access to the UEMOA government bond market, S&P Ratings notes, unlike Mali and Niger, which defaulted on their domestic debt in 2021 and 2023, respectively, after UEMOA decided to excluded from the utilization of the regional financial market.
Even if UEMOA membership remains intact, the economic impact of leaving Ecowas will inevitably have an impact on the quality and profitability of banks operating in the three countries, even if the blow will be negligible to the continent’s finances. larger regional banks, according to Ufomadu.
of Morocco Bank of Africathe continent’s eighth largest lender of primary capital according to data from The Banker database, operates in all three countries, as well as Ecobank International and Orabank. Nigeria’s UBA Group, meanwhile, operates in Burkina Faso and Niger.
“Leaving Ecowas would have an inflationary impact on all three countries, which would inevitably have an impact on asset quality, resulting in higher impairment charges and lower profitability for the local banking subsidiaries,” Ufomadu told The Banker.
“However the impact is unlikely to be very significant for regional banks given the relatively small size of the three economies compared to the rest of the region.”
Ecobank has been approached for comment.
Regional violence is on the rise
The withdrawal of the three states is unlikely to significantly weaken Ecowas in the short term, at least financially, given their relatively small contribution to the bloc’s overall gross domestic product (see chart).
“While Ecowas would lose around 70 million people, they are populations whose purchasing power is among the lowest in the entire bloc,” says Charlie Robertson, head of macro strategy at FIM Partners.
“Their withdrawal is unlikely to have a significant impact on the bloc or major economies such as Nigeria, Ghana and Ivory Coast.”
But the move deepens political divisions in the wider west African region, with Ecowas-backed initiatives to encourage a return to democratic governance in the three departing countries now dead in the water, according to Chatham House’s Melly.
Perhaps more important is the potential impact on coordinated regional efforts to combat a rising tide of Islamist violence in the Sahel region. Such violence claimed 11,643 lives in the region in 2023, an annual increase of 43 percent and a threefold increase since 2020, according to data from the African Center for Strategic Studies.
Burkina Faso, Niger and Mali remain the main centers of militant attacks in 2023, with ACSS noting that the total number of deaths for the three is almost certainly an underestimate, given the increased challenges facing independent media in each country .
The outlook for such violence looks bleak, with France withdrawing troops from Niger in December (following similar withdrawals from Mali and Burkina Faso in the past two years) that were helping in anti-Islamist operations, with UN troops also to withdraw.
“We expect [Islamist violence] will increase in the Sahel in the coming quarters after the withdrawal of the UN peacekeeping mission from Mali in December 2023,” Gohil tells BMI.
“This will lead to an increase in spillover risks in markets such as Benin, Cote d’Ivoire, Togo and to a lesser extent Ghana.”
Hurry or wait
Beyond the added challenges of dealing with Islamist violence, Ecowas faces a fork in the road in terms of its future strategy, says Melly.
“The real question is whether or not the remaining countries in the bloc will continue as they are after these withdrawals, or whether they will decide to be more proactive and strengthen their political and economic cooperation,” he says.
“It could give them an impetus to step up their efforts with the rest of their membership.”
Such a scenario is unlikely in the short term, Robertson says, with the bloc more likely to wait for a policy reversal from the three exiting members.
“Ecowas’ most likely approach is to stay the course and hope that the three countries will reconsider their participation down the line, perhaps after further changes in governments,” he told The Banker.
“The bloc is not really in a position to deepen integration among its remaining members at this point.”
Ecowas has been approached for comment.