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1 FCA= 0,000154 Euros ?

The Franc Zone: Macroeconomics or Masochism

Publié le 12 October 2008 by Célestin Monga
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Some states seem to revel in their misfortunes to the point of treating an economic crisis as if it were just one more stroke of bad luck. That’s understating the prevailing economic perception when we consider, for example, the strange monetary union known as the Franc zone, which exists since 1939 and consists of France, the Comoro Islands and fourteen other African countries. A seemingly inexpungible reminder from the colonial past, this bizarre entity continues to reflect the intellectual mimicry of African elites who forever dwell on past oppressions as well as the self-serving cupidity of a number of «Françafrique» networks whose members still dominate the French political class and effectively undermine the managing of Development Cooperation in Paris.

Whereas the North-African countries Morocco, Algeria or Tunisia also belonged to the Franc zone during the colonial period, after independence they recovered their monetary sovereignty. On the other hand unlike the Maghreb states, Sub-Saharan African countries carried over the colonial economic set up by signing cooperation agreements with France which put them under monetary trusteeship in the name of a so called African integration which never materialized. Half a century after de Gaulle’s « generously » accorded independences, these same countries with their very distinct economies and little common trade still use the same old colonial money, namely the Franc CFA.

This currency is tied to the euro through a fixed exchange rate and managed by a handful of officials at the European Central Bank in Frankfurt with little consideration for the real economy or the needs of these countries which also happen to be among the planet’s poorest. At a time when the world’s economy is slowing down, when the crisis of the international financial system and the stock markets threaten developing countries with recession, it is hard to understand why Francophone African countries, which rely almost exclusively on exports for their development still accept monetary arrangements that leave them no room for manoeuvre as far as external competition or internal economic policy is concerned. To make matters worse, the imports of these countries are usually billed in euros whereas exports are paid back in dollars. A strong euro against a weak dollar not only overrates the franc CFA (making for a loss of price competitiveness for export products on international markets), but also means a loss of export volume and therefore tax revenues. The actual economic configuration is not unlike the end of the 1980s when the deteriorating exchange terms and an overrated franc CFA lead to State impoverishment, declining investments, massively increased unemployment, capital flight and a spectacular policy of monetary devaluation, which in turn provoked a prolonged social crisis that is still deeply rooted in the collective memory.

An anachronism

The Franc zone is undoubtedly an economic and monetary anachronism for which its defenders produce a number of political and economic arguments. First it is claimed that the Franc zone serves as a basis for a future African political union. If that were really the case, the imposed union which defacto exists since nearly 70 years would have produced some tangible results. The violent discrimination recently encountered by thousands of citizens of Burkina Faso residing in the Ivory Coast or by people from Cameroon living in Gabon and in Equatorial Guinea seems to offset the dream of African unity between starving populations despite all slogans to the contrary vaunting the era of free circulation for people and merchandise.

Furthermore the Franc Zone is made out to be the nifty copy of the European Union, a sort of therapeutic step forward into a world where nation states disappear to the benefit of greater entities. Those advocating this theory of munificent ensembles have forgotten that the driving logic behind regional regrouping is primarily economic and not ideological. The creation of the European common market, for example, was the result of thriving trade between European states upon which later followed the abandonment of national currencies in favour of one unique European money. When the euro was finally adopted at the turn of the century intra-European commerce represented nearly 60% of the French or German foreign trade. In Francophone Africa, 70 years after the adoption of the Franc CFA, intra-African trade still represents less than 5% of regional commerce!

Would African leaders be incapable of managing their own money?

Any country that decides to give up its own monetary sovereignty to merge into a monetary union would in turn expect to benefit from increased employment flexibility, which then becomes the best guarantee against exterior shocks because people can move freely from one country to another to seize employment opportunities elsewhere within the monetary union. It is this much advocated flexibility of the labour market, which supposedly enables Polish plumbers to leave Warsaw and work in Hamburg or Paris if that’s where they find better professional opportunities. A Senegalese plumber who wants to set up shop in Libreville (Gabon) has very little chance of getting a visa to move there. And if by chance he should venture to Gabon clandestinely, he will meet with the violent hostility of Gabonese labourers embittered by years of unemployment who, in this country without constitutional rights, would not shrink from burning down his shop or threatening his life!

Another justification frequently cited for the necessity of the Franc zone is the irresponsibility of African leaders and their incapacity to manage currency. According to this line of thinking, they would all be tempted to follow the precedents of Mobuto Sese Seko in former Zaire or Robert Mugabe in Zimbabwe by printing out mountains of paper money. Another argument concerns the so called advantage of providing Francophone African states with a tool to control inflation and thereby assure the convertibility of their money. That may be true, but then if we take this argument to its logical conclusion we would then also have to say that these countries should never have become politically independent in the first place since it turns out that many of the African post-independence heads of state were or are even worse than yesterday’s colonial potentates. Apart from the blatant detail that neither ex-Zaire nor Zimbabwe ever belonged to the Franc zone as well as the fact that the exceptional, economic disorders within the DRC Congo and Zimbabwe are also statistically speaking, extreme cases which cannot serve to divert our focus from the numerous positive examples of past Franc zone, members like Morocco, Tunisia or Vietnam who are now successfully managing their own money and have even made their national currencies into the main instrument of development and industrialization.

The Franc zone, a captive market for select French businessmen

As for the mythical comfort of convertibility credited to the Franc CFA, just try to make a bank draft transfer from Brazzaville to Bangui or from Bamako to N’djamena. Immediately you run up against a barrier of administrative procedures not to mention steep transaction fees, numerous paid intermediaries, high amounts of additional taxes and commissions as well as much time wasted to perform these complicated operations. Topping off this procedural chain is the guarantee provided by the Bank of France, which in return requires all countries within the Franc zone to maintain open accounts with the French Treasury where at the least 65% of all export revenues must be deposited! Surprising advantage... but for whom?

The crux of the matter comes down to the plain, unvarnished truth that the much praised advantages of the Franc zone primarily buttress a captive market tailor made to suit certain French businessmen installed in Africa, which concomitantly serves the transactions of corrupt African elites who regularly journey to France to augment their personal deposits in Parisian banks. While they are over here, why not offer themselves Pierre Cardin suits and shopping sprees without worrying about exchange rates? As for some farsighted French or African businessmen who would be interested in creating small businesses or developing industries on a durable basis, they are more concerned by the structural problem of mechanically, deteriorating profitability which persists when the currency of a weak economy is tied to the fixed exchange rate of an overly strong currency such as the euro.

What interests job creators aren’t the modest inflation rate conjured up by the advocates of the Franc CFA but the opportunities for commercialising their production. From this standpoint, the monetary policies of black African countries adhering to the Franc zone continue to suffer from a rash of self-inflicted masochism. How pitiful, when they could draw from a number of fiscal guidelines provided by the remarkably workable, economic measures adopted by some of the senior graduates from the Franc zone like Tunisia or Vietnam.

Célestin Monga [1]

The 14 African countries within the Franc zone: Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea, Gabon, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo.

* This article is taken from the turn of the century study entitled «1 FCFA = 0,00154 euro? Macroéconomie du masochisme», which appeared in L’avenir de la zone franc: perspectives Africaines directed by Hakim Ben Hammouda and Moustapha Kassé, (Paris: Karthala, 2001).

(Translated for Survie by SS)

Note: For the original version of this press release as well as documentary references please consult the French version of our website Survie.org rubric Billets d’Afrique … et d’ailleurs.

Billets d’Afrique No 173, October 2008

by Célestin Monga

[1] is a Cameroonese economist, author of Sortir du piège monétaire (Economica), co-signed with J.-C. Tchatchouang as well as the author of L’argent des autres (LGDJ-Montchretien). His latest work, Un Bantou à Washington was published in 2007 by Presse Universitaires de France. He became a sort of popular hero in January 1991, when he was arrested for criticizing the President of Cameroon, Paul Biya, in a piece he wrote for Le Messager. His arrest sparked protests throughout the country. He is currently (2008) Lead Economist at the World Bank and adviser to its vice-President.

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