We’ve come to the end of May, almost halfway into 2020. Has the year been too fast or slow?
It’s also been a week with many happenings, an uneventful one for the black community due to the death of George Floyd. It’s sad but hopefully, this incident advances the fight for racial equality.
Some housekeeping: In June, we’d be experimenting with other forms of content so you’d get a few other emails asides the Saturday morning emails. We’d appreciate all the feedback we can get.
Now to the stories of the week 😊
Energy Boost in Africa
In Africa, there’s the challenge of low access to power, due to the inability of national power companies to invest in energy infrastructure, expand electricity distribution networks and increase the number of connections and their customers. Well, that’s changing...kinda.
The West African Power Pool, a cooperation of 14 West African Countries set up to create a reliable power grid for the region, has set aside $567.5 million on a project to supply 600 megawatts of electricity to its member states is to be completed by 2023. This cooperation exists under the umbrella of The Economic Community of West African States (ECOWAS). The project is being funded by The Federal Government of Nigeria (0.9%), Agence Francaise de Developpement (AFD) (6%), African Development Bank (AfDB) (20.5%) and the World Bank (72.6%).
A pattern emerges…
While this news may be new ;), ECOWAS tread in a similar direction back in March by securing $21.1 million for the construction of solar photovoltaic (PV) facilities for rural communities in Benin. Late last year, The World Bank partnered with ECOWAS to embark on a $225 million regional power project to enable cross-border electrification in Guinea Bissau, Mali, and The Gambia.
Africa’s transition to Renewables
Global interest in renewables, as a result of the climate change movement and the call for energy transition to low carbon resources, has also reflected on the African continent. In 2019, Ethiopia partnered with the African Development Bank (AfDB) on a project to install 25 mini-hybrid grids in 25 villages across the country. In the same vein, The government of Gambia partnered with the ECOWAS to construct a solar power plant with a total capacity of 150 megawatts in 2019.
A step closer towards the end of CFA Franc
West African countries moved one step closer towards the end of CFA Franc. As the French Council of Ministers passed a bill modifying its monetary agreement with the eight-member states of the West African Economic and Monetary Union (UEMOA).
A bit about the CFA Franc
CFA Franc is the name of two currencies used by mostly French colonised African nations: the West African CFA franc, used in eight West African countries, and the Central African CFA franc, used in six Central African countries. These two CFA francs have the same exchange rate with the euro (1 euro = 655.957 CFA), and they are both guaranteed by the French treasury, but the West African CFA franc cannot be used in Central African countries, and the Central Africa CFA franc cannot be used in West African countries. 🤔
Why end the CFA Franc?
On one hand, the move to end the use of CFA Franc is seen as the end of West African states’ “humiliating” dependence on France. While with Ivory Coast and Togo facing presidential elections in 2020 alongside Burkina Faso and Niger with parliamentary elections, it could merely be a move to please electorates.
What does the end of CFA Franc mean?
The West African countries using the currency will no longer have to deposit half of their foreign exchange reserves with the French Treasury. This deposit could be withdrawn at any time and ensured France would provide these countries with the Euro equivalent when needed for international trade. Talk about not having foreign exchange problems.
France, which often has a representative, would have to withdraw its presence from the monetary bloc’s governance bodies, such as the Central Bank of West African States (BCEAO).
Also, these countries no longer need to follow the monetary policies of the European Central Bank. Currently, because the exchange rate between the CFA franc and the Euro is fixed, the Central Banks of the two CFA franc zones need to follow the monetary policies such as interest rates, of the European Central Bank (ECB) in order to maintain the peg. In simpler terms, the ECB effectively sets interest rates for countries that use the CFA franc.
Why does this matter?
The CFA Franc provided monetary stability and brought inflation under control since it was tied to the Euro - when the Euro rises, the CFA rises & vice versa. However, this also means that the countries cannot devalue their currency at will, subsequently making it uncompetitive for exports.
The 14 countries which use the CFA represent 14 per cent of Africa’s population and 12 per cent of its GDP. Looking at the performance of these countries over the years (1994-2014), while they have experienced more economic growth and less inflation compared to the average of Sub-Saharan African,10 out of the 14 are on the UN’s list of least developed countries.
More importantly, a single currency was meant to favour trade in the Franc zone but it did not pan out as expected with intra-region trade accounting for only 19% of the trade in the West region and 7% trade in the central African region in 2014.
For the West African Countries in the Franc zone, It’s the adoption of Eco - the proposed currency for West African countries which isn’t coming anytime soon. For Central African countries, there are talks about a new monetary policy.
Big Picture: Generally in Africa, the move to end the use of the CFA Franc has been applauded as the right move but the only justification for this being a right move is if it gets a better replacement.
Sorry, We don’t take cash anymore
Commercial motorcycles in Rwanda are fully back into operation after several weeks of total lockdown but this time they would not be needing customers' physical cash.
Get this gist
Starting from June 1st, Rwanda Utilities Regulatory Authority (RURA) disclosed that cashless payments is now the only way of receiving remittance for commercial motorcycle taxi operators from customers in Kigali, the nation's capital. Drivers are now mandated to use meters and other cashless payment methods provided by network operators in the country.
How this would play out
With about 37,000 registered taxi-moto drivers in Rwanda and 22,200 of them operating from Kigali, parties involved are expected to have meters and other cashless payment methods provided by some telcos such as MTN MoMo or Airtel Money.This, however, will kickstart in Kigali and would be extended to other provinces in the country with time.
Before now: The Rwandan government, in their quest to bring the country closer to a cashless economy, created a 'tap and go' card as the only means of payment for commercial buses in Kigali back in 2017. This simple gesture would later mark a turn around for transport business operators in the country as yields and revenues saw major increases.
Motorcycle regulations in other African countries.
Uganda recently deliberated on regulating the activities of Boda Boda (commercial motorbikes) in Kampala. Although this has nothing to do with cashless policy, the Kampala Capital City Authority (KCCA) decided that riders will be divided by groups and will be only allowed to operate mainly in their allocated division with allocated vests and numbers. On the flip side, the activities of commercial motorcycles were scrapped from most local governments in Lagos, Nigeria, leaving thousands of road users helpless and angry in the over-populated city.
What this means for East Africa
The cashless policy will make it easy for the government to collect tasks, cut delays and inconvenience posed by cash transactions, allow for a cleaner and safer means of money exchange and ultimately reduce the loss of revenues caused by constant moving of physical cash.
In a nutshell: Rwanda has been at the forefront of digital transformation in Africa and this current development is in line with the government's goal to build a cash-light economy. Also, eliminating all forms of contact, this regulation will come in handy as part of the preventive measures for further spread of the novel coronavirus and reduce physical cash exchange (which is feared to be a major means of spreading the virus).
Worth reading 📚
Not every door is locked. Push.
Thank you for reading this week’s edition 💙