AN ECO OF THE PAST

Financial Mail - - ON MY MIND - Michael Sch­midt

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

Benin

Burk­ina Faso Cape Verde Gam­bia Ghana

Guinea Guinea-bis­sau Ivory Coast Liberia

Mali

Niger

Nige­ria Sene­gal

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

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