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Viewing cable 06ABUJA962, ECOWAS: STUMBLING TOWARD CONVERGENCE

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Reference ID Created Released Classification Origin
06ABUJA962 2006-04-27 17:03 2011-08-25 00:00 UNCLASSIFIED Embassy Abuja
VZCZCXRO6986
PP RUEHPA
DE RUEHUJA #0962/01 1171703
ZNR UUUUU ZZH
P 271703Z APR 06
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 5437
INFO RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 ABUJA 000962 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR DAN PETERS 
DEPARTMENT PASS USTR for L. AGAMA 
USDOC FOR 3317/ITA/OA/KBURRESS 
USDOC FOR 3130/USFC/OIO/ANESA/DHARRIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECIN EFIN NI
SUBJECT: ECOWAS: STUMBLING TOWARD CONVERGENCE 
 
REF:  ABUJA 770 
 
1.  Summary.  After years of false starts, the Economic 
Community of West African States (ECOWAS) is taking concrete 
steps toward a customs and monetary union. The former French 
colonies minus Guinea already have both, and the others are 
trying to follow suit.  The customs union and common 
external tariff (CET) are being implemented now, though late 
and with exceptions, and the main non-CFA countries are 
holding regular consultations on monetary convergence.  The 
goal is to create a new currency for the non-CFA countries 
and eventually merge it with the CFA franc.  The CET is a 
pre-requisite for an EU-ECOWAS Economic Partnership 
Agreement, needed to "grandfather" the Lome and Cotonou 
Conventions' post-colonial trade preferences into the WTO 
framework.  If trade convergence is successful, several U.S. 
multinationals plan to expand or diversify production 
facilities in ECOWAS countries to serve the whole sub- 
region. With half of ECOWAS's GDP and more than half of its 
people, Nigeria's cooperation will be the key to ECOWAS's 
success or failure as an economic union.  Given Nigeria's 
infrastructure and policy difficulties in the manufacturing 
sector (reftel), it may not be competitive initially in the 
ECOWAS customs union.  End summary. 
 
2. From discussions with ECOWAS and GON officials as well as 
private business people, it appears that ECOWAS, after many 
years of false starts, is starting to make measured progress 
toward the economic goals for which it was originally 
founded. 
 
---------------------------------------- 
Customs Union and Common External Tariff 
---------------------------------------- 
 
3. During negotiations in 2004 and 2005 for the Common 
External Tariff (CET), the Nigerian representatives 
reportedly had few comments on the various tariff 
classifications and received little guidance from Abuja. 
When it came time to implement the CET on July 1, 2005 
Nigeria was not ready. The GON finally began to implement 
the CET in October 2005, though Finance Ministry officials 
have told us that the tariff schedule even now is a work in 
progress. 
 
4. Nigeria adopted the CET structure of four tariff bands, 
namely 0% or 5% on capital goods, raw materials and 
essential items such as medicines; 10% on intermediate goods 
and 20% on finished goods. It added a fifth band not 
authorized by ECOWAS:  a 50% infant industry tariff on goods 
that compete with those produced in Nigeria.  In January 
2007, all trade bans are supposed to end and the banned 
items will instead face the 50% tariff. Though the 
additional band came as a surprise to our ECOWAS 
interlocutors, they expressed confidence in Nigeria's stated 
intention to abolish this category and merge it into the 
four-band system by the end of 2007. 
 
5. In the meantime, Nigeria is continuing its ECOWAS- and 
WTO-illegal trade bans while using the CET as political 
cover domestically. So far, the CET has met with opposition 
from the Manufacturers' Association of Nigeria (MAN) because 
of Nigeria's lack of competitiveness due to poor 
infrastructure and unfavorable domestic economic policies. 
The GON is assuring trading partners that CET implementation 
will eventually end its ad hoc approach to trade policy, and 
it does appear intent on implementing the CET, even if 
somewhat erratically. U.S. multinationals that manufacture 
in Nigeria have told us they intend to expand their Nigerian 
operations to supply other ECOWAS countries or to 
manufacture for the Nigerian market in other ECOWAS 
countries, depending on comparative advantages. 
 
6. The CET is important as a pre-requisite for an EU-ECOWAS 
Economic Partnership Agreement.  The European Union and 
ECOWAS must conclude this agreement for Europe's post- 
colonial trade preferences under the Lome and Cotonou 
Conventions to be "grandfathered" into the WTO framework. 
ECOWAS officials are very keen on this agreement for 
institutional reasons:  instead of having 25 European trade 
and aid policies toward 15 West African countries, the EU 
would like to develop unified trade and aid strategies on a 
region-to-region basis.  This could raise the status of 
ECOWAS from economic talk shop to regional economic focal 
point. 
 
 
ABUJA 00000962  002 OF 002 
 
 
----------------------------- 
Inching toward Monetary Union 
----------------------------- 
 
7.. ECOWAS's strategy for the countries not currently part 
of the Communaute Financiere Africaine (CFA), the post- 
colonial currency union to which most of the former French 
colonies in the sub-region belong, is for the non-CFA 
countries to coordinate their fiscal and monetary policies, 
form their own sub-regional currency by December 1, 2009, 
and eventually merge their currency zone with that of the 
CFA franc. 
 
8. Convergence criteria for the non-CFA countries are quite 
ambitious.  The Central Bank of Nigeria (CBN) refers to them 
as the "four pillars":  (1) single-digit inflation; (2) a 
government deficit less than or equal to 3% of GDP; (3) 
"external viability," defined as having enough foreign 
exchange on hand to cover three months' worth of imports; 
and (4) no central bank financing of the government's 
deficit.  The four criteria are highly inter-correlated, 
reinforcing convergence when followed and derailing it when 
not followed. 
 
9. The participating countries have started to implement 
some necessary coordination mechanisms, such as a real-time 
gross settlement system (RTGS). They are discussing draft 
statutes on harmonized banking supervision and financial 
surveillance and a draft West African Central Bank Act. 
They are recruiting staff for the West African Monetary 
Institute (WAMI), based in Ghana. ECOWAS and CBN officials 
hope that political will, joint institutions, common 
strategies and fiscal and monetary discipline will keep 
participating countries moving steadily toward monetary 
union.  Liberia and Cape Verde, while not actively 
participating, are interested in the intended currency zone 
and monitor its progress. 
 
10. Comment:  As in the case of most economic unions, trade 
convergence is likely to go much faster than monetary 
convergence.   A liberalized trade regime may initially harm 
Nigeria's already weak and tiny (4% of GDP) manufacturing 
sector, which is barely able to function even with high 
protective barriers. Overall, though the very restrictive 
trade regime almost certainly harms Nigeria's economy, 
including manufacturing, more than it helps, imposing high 
costs across the board. In the end, simply having a stable a 
trade regime would be a boon to Nigeria.  End comment.