Every year, the CIA and World Bank publish a list of the poorest countries in the world. In the current list available on the CIA website, the majority of the former French colonies in Africa fall in the ‘bottom 50’ of the poorest countries in the world. Coincidence or factors like bad governance, failure to invest in building human capital, and the myriad of other reasons? Well, you guessed right. It is all of the above… and then some. But one of the most important reasons is that which is most common to the block of former French colonies in Africa, and that is the CFA francs.
See, in 1945 General Charles De Gaulle and his officials knew that sooner than later there’d be enough pressure for them to grant independence to their colonies. So they created the CFA which guaranteed they’d control the colonies for many decades after the so called independence. Today, the CFA is the common currency of 14 countries in West and Central Africa, 12 of which are former French colonies and are on the list of the world’s poorest countries.
The current predicament is an off shod of a colonial arrangement created by De Gaulle and his officials and ratified by African countries whereby 65% of their foreign reserves had to be stored in the French treasury. Another 20% of the reserves of these African countries were to cover financial liabilities; an arrangement which still holds some six decades later. African countries are also not allowed to know how much they have in their so-called ‘Operations Account’, for it is a highly guarded French Secret. Even though these reserves benefit the Paris Bourse (stock exchange) almost entirely, recent rules enacted by France in 1973 further restrict the two central banks (CEMAC and WAEMU), to impose a cap on credit extended to each member country equivalent to 20% of the country’s revenue in the preceding year.
Interestingly, after the euro’s introduction, African CFA member countries still agreed to maintain a currency peg with France through an agreement drafted by the French Treasury. Thus, since 1945 the French treasury has had the sole responsibility of the convertibility of the CFA francs to other currencies. The fixed parity between the euro and CFA is based on official conversion rate for the French franc and the euro set in 1999 (FF6.55957 to one euro). As the CFA100 to FF1 exchange rate has not changed since the devaluation of 1994, the CFA franc-euro exchange rate is simply CFA665.957 to one euro – permanently fixed!
This lack of flexibility has had devastating effects on the economic growth of African francophone countries. Brian Weinstein says in his book ‘Africanisation in French Africa’ how until 1960 France had not considered independence as a legitimate goal for its colonies, thus the reason France still controls the economies of its ex-colonies some 40 years later.
For every growth in France’s GDP, the euro appreciates against the Dollar, thus the CFA franc assumes too high an exchange rate. This puts the brakes on growth in the African economies who are also heavily dependent on commodities produced by Asia and South American countries who have much more flexible currencies. Put simply, a strong euro just kills CFA member economies as they experience declining export prices. Since 1994, growth in CFA member countries has remained quite modest. Overall output increased by less that 3%, compared to 8% in previous years. Rising oil prices has a devastating effect on non-oil producing CFA member countries because of the direct link to the euro. Oil prices are set in US Dollars, and the value of the euro and CFA have risen some 30+% against the dollar. For the CFA and Euro, a strong exchange rate undermines export competitiveness as local goods are much more expensive.
A high fixed rate also kills economic growth in member countries, as it’s incompatible with productivity. The level of regional integration among member countries and the two central banks is remarkably low, even further undermining economic growth. Because the economies of Central African countries are heavily dependent on oil, and those of West Africa heavily dependent on other commodities, it is hard to argue for the long-term viability of the CFA unless of course you’re De Gaulle.
For these reasons, intellectuals like President Wade of Senegal and economists like Prof Mamadou Koulibaly (speaker of the Ivorian National Assembly) whom I met recently in London, among others argue that it is time for Africa to cut the umbilical cord with the French through their continued link with the euro through France. Today, the independence of francophone African countries is a myth. These countries need a currency that reflects their economies, one that is flexible and can benefit the commodities they produce; allowing them to be competitive in an increasingly global environment.
By Hinsley Njila
Email:hinsley@realfocus.org
The UN classifies countries as “least developed” based on three criteria: (1) annual gross domestic product (GDP) below $900 per capita; (2) quality of life, based on life expectancy at birth, per capita calorie intake, primary and secondary school enrollment rates, and adult literacy; and (3) economic vulnerability, based on instability of agricultural productions and exports, inadequate diversification, and economic smallness. Half or more of the population in the 50 least developed countries listed above are estimated to live at or below the absolute poverty line of U.S. $1 per day
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