The trio of West African countries have signalled their intention to leave the Economic Community of West African States ECOWAS and set up their own trading bloc, dubbed the Alliance of Sahel States.
Reinsurance markets in West Africa are likely to remain largely unaffected by the political and economic uncertainty besetting parts of the region according to analysts from AM Best.
Five West African countries, Gabon, Guinea, Niger, Mali and Burkina Faso – have experienced military coups since 2020. More recently, three of those countries – Niger, Mali and Burkina Faso – have signalled their intention to leave the Economic Community of West African States (ECOWAS), a political and economic union of 15 states, and set up their own trading bloc, the Alliance of Sahel States.
Withdrawal from ECOWAS requires 12 months written notice, which each of the three submitted at the end of January 2024. However, there is some speculation that the junta-led nations are looking to secure concessions from ECOWAS rather than to fully withdraw.
In a separate sign of regional upheaval, Senegal – regarded as one of the region’s more politically stable countries, looks set to experience a wave of instability following its president’s decision to postpone the 25 February president election until the end of 2024. This has promoted anger among some political rivals and drawn condemnation from ECOWAS.
The threat of withdrawal from ECOWAS by Niger, Mali and Burkino Faso has been widely predicted. The three countries have accused ECOWAS of straying from pan-African principles and falling under the influences of external forces such as France, US, UK and the EU. Reports suggest Western governments fear that the three countries are becoming more closely aligned with China and Russia.
ECOWAS has imposed economic sanctions on each of the trio’s transitional governments and had demanded elections. The sanctions added to inflationary pressures in each of the affected countries, and while some of the sanctions were lifted in July 2022, political resentment has remained.
As a result of the sanctions, borders between the three countries and other ECOWAS members were largely closed except for essential supplies, and economic activity with other ECOWAS members was severely curtailed.
Reports suggest that the trio are seeking bilateral trade arrangements with neighbouring countries, notably Togo, either individually or under the auspices of the newly formed Alliance of Sahel States.
Criticism has also been levelled by the trio towards the CFA Franc, the common currency of The West African Economic and Monetary Union (UEMOA), a customs and currency union of eight ECOWAS countries established in 1994. Preliminary discussions of withdrawal from UEMOA and establishment of a separate currency have taken place, although Mali has state its intention to remain part of UEMOA, despite its ECOWAS withdrawal.
Market Implications
According to AM Best, insurers in the three countries could see some negative repercussions were they to withdraw from ECOWAS and especially from UEMOA, albeit with the impact being manageable.
Although Niger, Mali and Burkino Faso together account for nearly a quarter of the population of ECOWAS, the three countries make up on 8% of the community’s GDP.
There is more concern that the exit of these countries from the community could further affect the flow of goods and services. Any increase in costs would likely have a knock-on effect on insurance claims costs, potentially causing a spike in inflation.
Furthermore, there would likely be a more limited range of assets in which domestic insurers could invest.
Withdrawing from ECOWAS would end the free movement of persons between Niger, Mali and Burkina Faso and other members of the community. That would contribute to greater trade frictions, and further increase inflation. That upward pressure of costs would likely be exacerbated in countries leaving the customs union of UEMOA.
Notes from the Editor: For a more detailed explanation on reinsurance implications and the role of regional reinsurers relating to this feature, visit here. This excerpt from the report was provided courtesy of AM Best, credited to Senior Financial Analyst Charlotte Vigier and Director Industry Research EMEA Richard Banks.
Interestingly, The Saudi Fund for Development (SFD) CEO HE Sultan Al-Marshad, signed 14 new development loan agreements worth USD 580 million with 12 African ministers to fund projects in Angola, Burkina Faso, Benin, Burundi, Cabo Verde, Guinea, Malawi, Mozambique, Niger, Rwanda, Sierra Leone, and Tanzania at Saudi-Arab-African Economic Conference in Riyadh Saudi Arabic in November 2023.
SFD also signed an MoU with the African Finance Corporation which will enable SFD to collaborate with AFC to identify, develop, and co-finance infrastructure and industrial projects across the continent.
The 14 development loan agreements signed include the Construction and Equipping of a Mother and Child Referral Hospital in Guinea for USD 75 million, a Riyadh Referral hospital in Sierra Leone for USD 50 million, Boarding Secondary Schools for Girls in Several Regions of Niger for USD 28 million, and the Higher College For Teacher Preparation And The Scientific Secondary School Project in Benin for USD 40 million. In addition, the agreements include the Rehabilitation of the King Khalid University Hospital in Bujumbura, Burundi for USD 50 million, the Manga Regional Hospital (Phase 2) in Burkina Faso, and Watersheds in the Islands of Santiago, Cabo Verde for USD 17 million.
SFD will fund the Catumbela Industrial Development Project (Phase 1) in Angola for USD 100 million, the Expansion of The Transmission and Distribution Water System in the East of Kigali for USD 20 million, Rwanda, and the Construction and Rehabilitation of the Mangochi-Makanjira Road in Malawi for USD 20 million. Three other agreements with Mozambique include the Construction and Equipping of Five Hospitals in different regions, the Construction of the Muera Dam, and the Rehabilitation and Upgrade of Two parts of National Road No.1 for USD 50 million each and lastly the Benaco to Kyaka Transmission Line Project in Tanzania for USD 13 million USD.
