Dear Mr. Fahim,
Former French colonies have grown more slowly than former British colonies, in part, in very large part in my view, because the British left behind well-functioning institutions of government and the French didn’t. I have spent 40 years providing technical assistance to central banks and it has never been the case that stable money and fiscal prudence caused slower economic growth.
You report that the central banks of the BCEAO and the BEAC were required to hold 100% of their FX reserves with the French Treasury at independence and that it has eroded since to almost half that more recently. I helped draft the monetary provisions of the Dayton Peace agreement that established the legal foundations of the Central Bank of Bosnia and Herzegovina and then led the IMF missions that established that bank in the late 1990s. It has tight currency board rules, i.e., all of its monetary liabilities must be fully (at least 100%) back by foreign currency assets (deposits/investments abroad). Thus, there can be no monetary policy. The money supply is determined by the market, which buys local currency with Euros whenever it wants more M. Over the last three decades Bosnia’s real GDP has grown more rapidly than has Germany’s. Bosnia has many serious problems, but they are political (religious hatreds, etc.). The three religious blocks disagreed about almost everything except currency board rules for money.
Estonia, which established currency board rules at about the same time was the fastest growing country in Europe. It has now replaced its currency board governed currency with the Euro itself.
Capital flows (investors being greedy people) to where the expected risk adjusted return is highest. You should be investigating what policies and conditions cause capital to flow out rather than into the BCEAO and the BEAC. It is not stable money.
Warren Coats
On Aug 31, 2022, at 1:50 AM, Mayraj Fahim <fmayraj@yahoo.com> wrote:Since 2005, the two central banks – the Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC) – have been required to deposit 50 per cent of their foreign exchange reserves in a special French Treasury ‘operating account’. Immediately following independence, this figure stood at 100 per cent (and from 1973 to 2005, at 65 per cent).The credit-to-GDP ratio stands around 25% for the WAEMU zone, and 13% for the CAEMC zone, but averages 60%+ for sub-Saharan Africa, and 100%+ for South Africa etc. The CFA franc also encourages massive capital outflows. In brief, membership of the franc zone is synonymous with poverty and under-employment, as evidenced by the fact that 11 of its 15 adherents are classed as Least Developed Countries (LDCs), while the remainder (Côte d’Ivoire, Cameroon, Congo, Gabon) have all experienced real-term economic decline.The CFA Franc: French Monetary Imperialism in Africa
- The combination of an overvalued convertible currency, corruption, macroeconomic uncertainty and the free movement of resources across most of Francophone Africa encourages serious capital flight.
- A recent estimate places aggregate net capital flight out of the African currency union during the period 1970 to 2010 at around US$83.5 billion,117% of combined GDP.
- Capital flight of this order will have seriously reduced domestic investment and depressed economic growth.
France Benefits at the expense of the African Franc ZoneI think EU should press France because Africa so close to some European countries it is visible from their coasts. Africa has a booming young (and jobless population). CFA Franc must be contributing to that.Africa’s Youth Unemployment Crisis Is a Global Problem"Youths account for 60% of all of Africa’s jobless, according to the World Bank. In North Africa, the youth unemployment rate is 25% but is even greater in Botswana, the Republic of the Congo, Senegal, and South Africa, among others. With 200 million people aged between 15 and 24, Africa has the largest population of young people in the world."Africa's jobless youth cast a shadow over economic growthIncreasing and Diminishing Returns – Africa’s Opportunity to DevelopOn Wednesday, August 31, 2022 at 02:27:56 AM GMT+5, Warren Coats <wcoats@gmail.com> wrote:You need to look else where for their slow growth than a stable currency.Warren CoatsOn Aug 30, 2022, at 4:43 AM, Mayraj Fahim via Salon <salon@listserve.com> wrote:--How France Underdevelops AfricaBy Anis Chowdhury and Jomo Kwame Sundaram- Most sub-Saharan African French colonies got formal independence in the 1960s. But their economies have progressed little, leaving most people in poverty, and generally worse off than in other post-colonial African economies.
Decolonization?
Pre-Second World War colonial monetary arrangements were consolidated into the Colonies Françaises d’Afrique (CFA) franc zone set up on 26 December 1945. Decolonization became inevitable after France’s defeat at Dien Bien Phu in 1954 and withdrawal from Algeria less than a decade later.France insisted decolonization must involve ‘interdependence’ – presumably asymmetric, instead of between equals – not true ‘sovereignty’. For colonies to get ‘independence’, France required membership of Communauté Française d’Afrique (still CFA) – created in 1958, replacing Colonies with Communauté.Anis Chowdhury
CFA countries are now in two currency unions. Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo belong to UEMOA, the French acronym for the West African Economic and Monetary Union.
Its counterpart CEMAC is the Economic and Monetary Community of Central Africa, comprising Cameroon, the Central African Republic, the Republic of the Congo, Gabon, Equatorial Guinea and Chad.
Both UEMOA and CEMAC use the CFA franc (FCFA). Ex-Spanish colony, Equatorial Guinea, joined in 1985, one of two non-French colonies. In 1997, former Portuguese colony, Guinea-Bissau was the last to join.
Such requirements have ensured France’s continued exploitation. Eleven of the 14 former French West and Central African colonies remain least developed countries (LDCs), at the bottom of UNDP’s Human Development Index (HDI).
French African colonies
Guinea was the first to leave the CFA in 1960. Before fellow Guineans, President Sékou Touré told President Charles de Gaulle, “We prefer poverty in freedom to wealth in slavery”.Guinea soon faced French destabilization efforts. Counterfeit banknotes were printed and circulated for use in Guinea – with predictable consequences. This massive fraud brought down the Guinean economy.
France withdrew more than 4,000 civil servants, judges, teachers, doctors and technicians, telling them to sabotage everything left behind: “un divorce sans pension alimentaire” – a divorce without alimony.Jomo Kwame Sundaram
Ex-French espionage documentation service (SDECE) head Maurice Robert later acknowledged, “France launched a series of armed operations using local mercenaries, with the aim of developing a climate of insecurity and, if possible, overthrow Sékou Touré”.
In 1962, French Prime Minister Georges Pompidou warned African colonies considering leaving the franc zone: “Let us allow the experience of Sékou Touré to unfold. Many Africans are beginning to feel that Guinean politics are suicidal and contrary to the interests of the whole of Africa”.
Togo independence leader, President Sylvanus Olympio was assassinated in front of the US embassy on 13 January 1963. This happened a month after he established a central bank, issuing the Togolese franc as legal tender. Of course, Togo remained in the CFA.
Mali left the CFA in 1962, replacing the FCFA with the Malian franc. But a 1968 coup removed its first president, radical independence leader Modibo Keita. Unsurprisingly, Mali later re-joined the CFA in 1984.Resource-rich
The eight UEMOA economies are all oil importers, exporting agricultural commodities, such as cotton and cocoa, besides gold. By contrast, the six CEMAC economies, except the Central African Republic, rely heavily on oil exports.CFA apologists claim pegging the FCFA to the French franc, and later, the euro, has kept inflation low. But lower inflation has also meant “slower per capita growth and diminished poverty reduction” than in other African countries.
The CFA has “traded decreased inflation for fiscal restraint and limited macroeconomic options”. Unsurprisingly, CFA members’ growth rates have been lower, on average, than in non-CFA countries.
With one of Africa’s highest incomes, petroleum producer Equatorial Guinea is the only CFA country to have ‘graduated’ out of LDC status, in 2017, after only meeting the income ‘graduation’ criterion.
Its oil boom ensured growth averaging 23.4% annually during 2000–08. But growth has fallen sharply since, contracting by -5% yearly during 2013–21! Its 2019 HDI of 0.592 ranked 145 of 189 countries, below the 0.631 mean for middle-ranking countries.
Poor people
With over 70% of its population poor, and over 40% in ‘extreme poverty’, inequality is extremely high in Equatorial Guinea. The top 1% got over 17% of pre-tax national income in 2021, while the bottom half got 11.5%!Four of ten 6–12 year old children in Equatorial Guinea were not in school in 2012, many more than in much poorer African countries. Half the children starting primary school did not finish, while less than a quarter went on to middle school.
CFA member Gabon, the fifth largest African oil producer, is an upper middle-income country. With petroleum making up 80% of exports, 45% of GDP, and 60% of fiscal revenue, Gabon is very vulnerable to oil price volatility.
One in three Gabonese lived in poverty, while one in ten were in extreme poverty in 2017. More than half its rural residents were poor, with poverty three times more there than in urban areas.
Côte d’Ivoire, a non-LDC CFA member, enjoyed high growth, peaking at 10.8% in 2013. With lower cocoa prices and Covid-19, growth fell to 2% in 2020. About 46% of Ivorians lived on less than 750 FCFA (about $1.30) daily, with its HDI ranked 162 of 189 in 2019.
CFA’s neo-colonial role
Clearly, the CFA “promotes inertia and underdevelopment among its member states”. Worse, it also limits credit available for fiscal policy initiatives, including promoting industrialization.Credit-GDP ratios in CFA countries have been low at 10–25% – against over 60% in other Sub-Saharan African countries! Low credit-GDP ratios also suggest poor finance and banking facilities, not effectively funding investments.
By surrendering exchange rate and monetary policy, CFA members have less policy flexibility and space for development initiatives. They also cannot cope well with commodity price and other challenges.
The CFA’s institutional requirements – especially keeping 70% of their foreign exchange with the French Treasury – limit members’ ability to use their forex earnings for development.
More recent fiscal rules limiting government deficits and debt – for UEMOA from 2000 and CEMAC in 2002 – have also constrained policy space, particularly for public investment.
The CFA has also not promoted trade among members. After six decades, trade among CEMAC and UEMOA members averaged 4.7% and 12% of their total commerce respectively. Worse, pegged exchange rates have exacerbated balance of payments volatility.
Unrestricted transfers to France have enabled capital flight. The FCFA’s unlimited euro convertibility is supposed to reduce foreign investment risk in the CFA. However, foreign investment is lower than in other developing countries.
Total net capital outflows from CFA countries during 1970–2010 came to $83.5 billion – 117% of combined GDP! Capital flight from CFA economies was much more than from other African countries during 1970–2015.
IPS UN Bureau
Salon mailing list
Salon@listserve.com
https://mlm2.listserve.net/mailman/listinfo/salon