By Amath Ndiaye, Senior Lecturer, University Cheikh Anta Diop of Dakar.
The debate on the CFA arouses a lot of passions, because it sends us back to our colonial past. This coinage of colonial origin is part of this multidimensional heritage that binds us to France. We can not and must not reject everything from the colonial legacy because what matters is to be free to take what is good for us by choosing the reason and not the heart. Our dignity is certainly abused on continents and seas because of our economic suffering and the violence that devour us but especially because of our inability to take our destiny into our own hands. Yes, we need a burst of pride, let the heart speak but always keep the necessary serenity to think with reason.
Some believe that the CFA of 1945, created to reinforce the economic exploitation of the African colonies, perpetuates the monetary servitude of Francophone Africa. Others think that the CFA of 1945 is not the same as today’s. What is it really?
Institutional Reforms and Africanization of Central Banks of Central and West African States
Created in 1945, the CFA franc then meant “franc of the French colonies of Africa”. After independence, it was renamed “franc of the financial community of Africa”.
In the early years of independence, the institutional arrangements put in place made it possible to perpetuate the colonial economic exploitation. Indeed, France held half of the seats in the Central Bank of Equatorial Africa and Cameroon (BCEAEC), in Madagascar and since 1967 in Mali, one-third in the Central Bank of African States. West (BCEAO), but in the latter case certain decisions had to be taken by a qualified majority, implying in fact the agreement of France. Moreover, in order to maintain its commercial monopoly over the franc zone countries, the system was initially accompanied (before the signing of the Yaoundé Convention) of a trade preferences regime. Imports from outside the franc zone were subject to quotas, while France guaranteed the sale of certain African products at stable prices. (1).
Although there are the Yaoundé and then Lomé agreements to maintain Western Europe’s trade monopoly over their former colonies, the trading partners of the franc zone countries will diversify. And the African states of the franc zone will express a need for more independence in the context of this monetary cooperation. It is in this context that the revision of the agreements signed during independence took place. It is essentially the result of a desire of the African States of the Franc Zone to increase their responsibilities in the economic and financial field. This desire was reflected in particular by: • a reform of the governance of issuing institutions, notably through the adoption of new statutes for African central banks, • an Africanization of staff and the implementation of a policy of training and promotion of future executives of issuing institutions • transfer of the headquarters of the two central banks (then in Paris) in Africa: in Yaoundé, Cameroon, in 1977 for the Bank of Central African States (BEAC ) and Dakar, Senegal in 1978 for the Central Bank of West African States (BCEAO).
To these provisions is added an Africanization of management: since the adoption of the new statutes of the B.E.A.C., the chairman of the board of directors became African while his predecessor, anachronistic, was French; at the BCA, where the president was formerly African, the functions of president and chief executive officer were united in that of governor, who must be a national of the states of the Union.
In fact, even if France continues to have privileged economic relations with the countries of the franc zone, the economic facts show that Francophone Africa, in any case, as far as the economy is concerned, is no longer the hunting preserve of France. (2) In the early 2000s, French exports accounted for just over 26% of imports in French-speaking African countries, with almost half of the market share in Gabon or the Central African Republic. In 2017, the market share of France was only 12%. This fall is widespread: they decreased in all countries of Francophone Africa without exception between 2001 and 2016. In other words the CFA, oddly instead of making Francophone Africa a monopoly of France, allowed a diversification of partners Francophone Africa with the rise of China, India, Turkey and Morocco, to name but a few. In this regard, read the article by Madiambal Diagne, “Attention to clichés about French interests in Senegal”, which highlights the rise in strength of competitors from France to Senegal. (3).
The Economic Performance of the Franc Zone Countries
In 2018, two countries in the CFA zone, are among the 8 countries with the highest economic growth in the world. These are Ivory Coast and Senegal with respectively 6.9% and 7.2% growth rate.
In the ranking of African countries by gross domestic product per capita or income per capita, two countries in the CFA zone are among the top four: Equatorial Guinea (1st) and Gabon (4th), Nigeria (17th), Ghana (18th) ).
The African countries of the franc zone are known to be the champions of the fight against inflation in Africa. They recorded the lowest inflation rates on the continent, well below the WAEMU convergence criteria: Senegal 1.3% (2017), Côte d’Ivoire 1.2% (2017) in contrast with Ghana 10% (2017) and Nigeria 11.4% (2018). It should be noted that the relatively high rates of inflation recorded by Nigeria and Ghana are largely related to the depreciation of their currencies which, via the increase in the prices of imports, fuels inflation.
In addition, it is low inflation in the CFA zone countries which in turn explains why interest rates are lower. Thus, the key interest rates of BCEAO and BEAC, issuing the CFA Franc, set respectively at 2.5% since September 2013 and 2.45% since July 2015, are the lowest historical rates of these two. central banks and among the lowest currently practiced by a central bank in Africa. Only the Central Bank of Morocco has, since March 2016, a lower rate than those of the BCEAO and the BEAC, ie 2.25%. In Nigeria and Ghana, the central bank’s key interest rates are set at 14% and 26% respectively at the end of August 2016. In the so-called BRICS emerging markets, the key rates are also significantly higher than those of the BCEAO and the Central Bank. BEAC, representing 14.25% in Brazil, 10.5% in Russia, 6.50% in India, 4.35% in China and 7% in South Africa. (4)
Today, central bank policy rates are: for Senegal and Ivory Coast 4.5%, Nigeria 14% and Ghana 16%. This means that the fixed exchange rate of the franc zone countries, in addition to exchange rate stability, offers more favorable interest rates for investment.
Those who say that the CFA is a hindrance to development because it does not meet the financing needs of the Franc zone economies speak without looking at the macroeconomic data. To make the international comparison of the performance of financial institutions in the financing of the economy, the indicator used is the ratio of domestic credit to the private sector. The higher this ratio, the greater the financing received by the private sector from banks. With the 2017 data of the World Bank, in the Republic of Guinea, the ratio of bank credit to GDP is 10.0%; it is 14.2 in Nigeria and 13.8 in Ghana. In contrast, it is much higher in the UEMOA countries with 26.5% in Côte d’Ivoire, 29.4% in Senegal and 39.6 in Togo (5)
The Operating Account and the Management of Reserves
The mechanism of centralization of the foreign exchange reserves was, in 1945 at the time of the fixed exchange rate regimes, a way of making the CFA zone countries contribute to the constitution of the reserve fund indispensable for frequent interventions on the foreign exchange market. Today, the CFA zone states are required to deposit 50% of their foreign assets in an account held by the French Treasury and in exchange, France grants them an unlimited convertibility of the CFA franc.
Today, it is the account of operations that focuses the most misunderstanding on the part of the CFA’s opponents. The first clarification that we wish to make is to say, in the opinion of the African public opinion, that the reserves paid into this account do not constitute payments made to France, that they belong to the BCEAO and BEAC, that they produce interest for the latter and that they can dispose of it at any time to make foreign currency settlements. The reserves paid by these states, to obtain the guarantee of convertibility of the CFA, are like the salary that one domiciles in his bank to guarantee a credit. The salary does not belong to the bank but to the account holder who, moreover, can dispose of it at any time.
According to detractors of the CFA, the reserves of the account of operations are financial resources deprived of the economies of the zone; and that they could invest to finance their growth. The economist Malamine Mohamed retorted that: “The foreign exchange reserves held by the BCEAO and the BEAC have in fact already been injected into the economies of the zone in CFA francs equivalent”. (4) Indeed, these reserves are part of what are called the counterparts of the money supply, ie the assets that enable the central bank to create money. It is because these foreign currency reserves can not flow into the economy that central banks exchange them for CFA currency. To think of using them to finance the economies is to show total ignorance of the economy of the economy.
A blog post, published on January 25, 2019 on the Club Mediapart and which has toured social networks, accuses France “to plunder each year 440 billion euros to Africans through the CFA Franc.” Statements of this type are senseless and fuel hatred against the CFA and France. How can France be paid 440 billion euros each year by the African countries of the CFA zone, while the wealth produced by these 14 countries in one year (2016 GDP) is only 165 billion euros?
To those who believe that France feeds or survives only thanks to African currency reserves, here are the numbers. Total reserves of France as of December 31, 2018 = 100 168 billion CFA. Total African country reserves in the CFA zone as at 31 December 2018 = 10976 billion CFA. Conclusion: African reserves in the CFA zone are equivalent to 11% of French reserves. The budget of France 2018 makes 216 400 billion CFA thus the reserves of the CFA countries equivalent to 5% of the budget of France. (6)
Finally, in anti-CFA rhetoric, one realizes that there are many misconceptions that do not stand up to the analysis of economic facts. The CFA will have at least one merit, it is to have impelled economic and monetary cooperation between the French-speaking countries of West Africa; a dynamic that has made UEMOA the most integrated zone of the African continent. The disappearance of the CFA has long been programmed by the UEMOA states, which are stakeholders in the creation of a single currency in ECOWAS.
And finally, we will say that the CFA franc and the French language, colonial legacies highly symbolic, can still be useful. The integration of Africa will certainly be done without the CFA but it is not sure that it can be done without the French language.
References.
(1) Patrick Guillaumont and Sylviane Guillaumont (1974): The adaptation of monetary mechanisms and the freedom of choice of African countries: Advantages and disadvantages of the franc zone. Diplomatic World, May 1974.
(2) Coface (2018): Particularly pronounced market share losses in French-speaking Africa. Economic publications of COFACE 2018.
(3) Madiambal Diagne (2019): Watch out for clichés about French interests in Senegal. Daily newspaper January 28, 2019.
(4) Malamine Mohamed (2016): The CFA Franc: fantasies, delusions and realities. Financial Afrik, September 7th, 2016.
(5) World Development Indicators, World Bank
(6) DG. Treasury Posted on 08/1/2019
