The rest of West Africa is often overlooked but it is worth considering, not least because of the growing cross-border scope of the region’s biggest banks.
The IMF believes that the economy of the West African Economic and Monetary Union (WAEMU), which covers most of Francophone West Africa, remains strong but exhibits increased vulnerabilities. Senegal is embarking on an interesting experiment that could either provide big opportunities or great competition for the nation’s banks.
In December, it became only the second country in the world, after Tunisia, to launch a national digital currency. It will have the same value as the CFA franc and can be stored in all mobile money and e-money wallets. Given current optimism over the country’s economic prospects, these are exciting times for Senegal and Senegalese banking.
Very quietly and with little fuss, Senegal has joined the ranks of Africa’s fast growing economies, alongside Kenya, Tanzania and Côte d’Ivoire. GDP increased by 6.5% in 2016, the fastest rate for 11 years, and the IMF forecasts annual growth of 7% for this year and next.
The government is currently revising the basis on which it calculates its GDP. It previously used 1999 as its baseline but Finance Minister Amadou Ba expects a 30% increase in the size of the economy when the process is completed.
Above all else, Dakar has achieved what few other governments can lay claim to: it has actually done what it said it was going to. The government has slowly reduced its fiscal deficit from 5.5% in 2013 to 4.2% in 2016 and is on track to reach 3% by 2019, which is the medium-term target for the WAEMU. It has also managed to reach its budget targets.
Senegal has the prospect of becoming a significant oil and gas producer in the near future. Kosmos Energy has discovered the Tortue Field with an estimated 15 trillion cu ft of natural gas at present but up to 50 trillion cu ft has been suggested.
This would be sufficient to fuel a huge liquefied natural gas (LNG) plant and provide as much gas as onshore power, fertiliser and cement plants could consume. BP has bought a stake in Kosmos’ Senegalese blocks and so the required investment should now be forthcoming. In addition, Scottish oil company Cairn has already discovered offshore oil reserves.
However, the government must be careful not to replicate Ghana’s recent development. The Ghanaian economy was already growing strongly when hydrocarbons were discovered, apparently putting the icing on what was an already attractive cake.
However, Accra seemed to get ahead of itself in terms of increasing spending too quickly, fuelling both inflation and debt. On 13th April, credit ratings agency Moody’s lifted Senegal’s long-term issuer and senior unsecured debt rating from B1 to Ba and changed the outlook to stable from positive.
World’s second national e-currency
It is against this backdrop that Senegal has followed in the footsteps of Tunisia by launching a new national digital currency. Based on blockchain, the same technology behind bitcoin, the crypto currency has been given the stopgap name eCFA. The new currency will be compatible with other digital cash systems in Africa.
It has been developed by a Senegalese bank, Banque Régionale de Marchés (BRM), and eCurrency Mint. In a statement, the two partners said: “The eCFA is a high-security digital instrument that can be held in all mobile money and e-money wallets. It will secure universal liquidity, enable interoperability, and provide transparency to the entire digital ecosystem in WAEMU.”
In terms of security, the developers say that the currency will be secured by cryptographic protocols to ensure that it cannot be counterfeited. Proponents also argue that such currencies are more transparent and easily regulated by central banks.
To some extent, the eCFA is not as revolutionary as some would believe because of its dependence on the central banking system. The electronic money provided by BRM can only be issued by an authorised financial institution.
Other governments and central banks are contemplating launching their own digital currencies. For instance, the People’s Bank of China plans to issue its own currency based on blockchain.
Why Senegal?
There appear to be two main reasons why Senegal was open to the idea. Firstly, the country is already in an unusual position with regards to its currency. Its CFA franc is shared by 14 countries in West and Central Africa, with its value guaranteed by the French government.
It is therefore used to seeing its currency in a different light to many other countries. The region is also more open to the concept, as the Central Bank of West African States (BCEAO), which serves the countries using the CFA franc, has already drawn up its own e-currency regulations.
Secondly, the concept of technological leapfrogging has become more common in recent years, with proponents arguing that the continent could catch up in developmental terms by bypassing stages of technological development in favour of the latest advances. Dakar and Tunis are therefore open to the idea of alternative, parallel currencies, daring to take the lead on launching them.
The experiment could fail but could also prove revolutionary in a region where most people still lack formal bank accounts. This factor could make the currency more acceptable to potential users than in other parts of the world, as more people use airtime than have traditional bank accounts.
The BCEAO will be responsible for the currency’s distribution in the rest of the region in Phase 2. It is to be distributed in Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger and Togo.
Alioune Camara, the chief executive of BRM, said: “We are committed to bringing digital financial services and true financial inclusion to West Africa. We can now facilitate full interoperability between all e-money payment systems. This is a great leap forward for Africa.”
These are exciting times for Senegalese banking in general. Despite the rise of alternative currencies and methods of accessing bank services, the number of physical bank branches has increased rapidly, from 448 at the start of 2014 to 557 at the start of 2016. There are currently 20 banks in the country, including Banque de l’Habitat du Senegal, Islamic Bank of Senegal and Banque Atlantique.