AN ECO OF THE PAST
As of this month, the West African CFA franc is supposed to be replaced by a new currency. In many respects the move looks symbolic — though it has still created waves in the region
When France pulled out of its African colonies in the 1960s, it retained its grip on power through currency control, backed by a military interventionist presence, which all but guaranteed that the former colonies would be the chasse gardée, or private hunting preserve, of French companies.
For some years now, though, France’s military and economic dominance has been in decline. Its monetary influence, too, may be on the wane, with July set to mark, in theory at least, the beginning of the end of the West African CFA franc — common currency in eight former colonies.
In December the presidents of Ivory
Coast and France, Alassane Ouattara and Emmanuel Macron respectively, announced that the West African CFA franc would be replaced with a new regional currency, the eco, under the West African Economic & Monetary Union (Uemoa).
The announcement unleashed a storm of debate over currency sovereignty in
West Africa, not least because it took the wind out of the sails of the Economic Community of West African States (Ecowas). That body — which includes the eight Francophone states of Uemoa — already had plans, through the West African Monetary Zone (Wamz), to launch a regional currency, also called eco. Once launched, that eco was supposed to merge with the West African CFA franc.
At an extraordinary meeting of the Wamz heads of state and government last week, Nigeria’s President Muhammadu Buhari criticised Uemoa for jumping the gun, warning that Ecowas’s plan for a regional currency could be in “serious jeopardy” if member states did not comply with already agreed processes.
With various sticking points — not least of which is that Uemoa states, for the most part, don’t meet the criteria to convert their currency to the France-backed eco — the move is looking largely symbolic.
The CFA franc has enjoyed remarkable stability since its launch in 1945 as a result of its peg to the French franc, and later to the euro. Its exchange rate has changed only once: in 1994, the International Monetary Fund (IMF) and the French treasury forcibly devalued it by 50%. But its sustained overvaluation has hurt CFA zone exports by undermining their competitiveness, and restricted credit to and investment in local economies — all of which have limited growth.
Yet under Uemoa’s agreement with France, the eco will remain pegged to the euro, and France will continue to guarantee the currency’s convertibility — which will require foreign reserves to be pooled collectively.
It’s not quite the flexible exchange rate and currency independence Ecowas had planned. As Rand Merchant Bank analyst Daniel Kavishe tells the FM: “Remaining pegged [to the euro] would mean that a separate approach is being taken from what was the initial intention for the region at large.”
At the same time, Sven Richter of Drakens Capital tells the FM that while the CFA franc has “[limited] the countries in terms of their ability to conduct monetary policy”, an independent, flexible regional currency would have a mixed impact on the very different economies of West African countries.
As was the case with the launch of the eurozone, he says, countries would need to “allow for the repricing of their outputs via a weakening currency”, and the weak national economies in West Africa would not be able to be bailed out, because the region simply would not possess sufficient reserves.
Nigeria’s opposition also poses a problem. On the one hand, any regional monetary bloc that excludes an economy as large as Nigeria’s runs the risk of not being able to achieve its regional trade and integration objectives.
On the other hand, having the fortunes of smaller economies tied to that of Nigeria is risky: the country produces 70% of regional output, but its economy is tightly bound up in the volatile oil price.
There may be a further early downside to currency independence. Richter argues that the benefit of a central currency is “lower interest rates than the countries would achieve [on their own]”. He says: “So, in many ways, the countries are in a bind: to achieve currency independence they would most likely move to higher interest rates, [which] would reduce their GDP growth. “This may be why the move [to the eco] is a small one, in effect. If they want full currency independence, it will come one step at a time.” Perhaps more significant is
Economic Community of West African States (Ecowas)
West African Economic & Monetary Union (Uemoa) and Ecowas
Burkina Faso Cape Verde Gambia Ghana
Guinea Guinea-bissau Ivory Coast Liberia
Sierra Leone Togo
to fund the election campaigns of a series of French conservative candidates committed to propping up African strongmen whose regimes would be granted debt relief if
“their” candidate was successful.
As Prof Stephen Smith, former Africa editor of French newspaper Libération, said a few years ago, there was “a long continuity of the practice” dating back to the late 1950s — with “a continuity of conservative governments” installed, in part, through la valise. “This amounts to a postcolonial informal state, not on paper, but in practice,” he said.
La valise operated into at least the mid2000s thanks to facilitator Robert Bourgi, who ran the system until its exposure forced a nervous administration of then president Jacques Chirac to supposedly bring it to a halt in 2005.
Yet astounding 40% debt reductions awarded by President Nicolas Sarkozy’s administration to Gabon and Congo led some observers to question whether suitcases didn’t continue to change hands into the early 2010s at least.
Now, however, with Chinese, Indian and SA influence on the rise in Africa, French companies’ chasse gardée no longer boasts exclusivity.
Which is, perhaps, why France has supported Uemoa’s pre-emptive currency move.
Samba Sylla is cynical. He believes the CFA franc and its successor, the eco, amount to “more than a symbol of the monetary system”. They are designed, he says, “to organise African countries in a way that benefits the interest of French businesses, French government and more generally European businesses”.
Done deal: In December, French President Emmanuel Macron and Ivory Coast's Alassane Ouattara announced the end of the CFA franc in West Africa Gallo Images/afp/ludovic Marin