West African opportunity

In view of the ongoing Euro crisis, African economists think it would make sense to unpeg the CFA Franc from the European currency. They argue that the fixed exchange rate and the policies needed to enforce it are hampering development.

By Mohamed Gueye

In Europe and in the industrialised world in general, fears are spreading that the European Monetary Union may unravel. Should that happen, even the USA would be severely affected. South of the Sahara – and especially in the countries that use the CFA Franc – people similarly worry about what the Euro crisis will imply. Governments as well as opposition parties are afraid an eventual collapse of the Euro will drag down the CFA Franc. The Euro–CFA Franc exchange rate is fixed. The Banque de France, the French central bank, guarantees this peg.

On the other hand, many African intellectuals hope the current crisis will finally motivate their political leaders to undo the monetary tie to Europe. This tie increasingly seems an outdated left-over from the colonial era. France and Europe no longer matter to sub-Saharan economies in a way that would justify the political clout which arises from absolute control of monetary policy.

14 countries in West and Central Africa use the CFA Franc as their currency. They belong to two economic and monetary unions: UEMOA (Union Economique et Monétaire Ouest Africaine) in West Africa and CEMAC (Communauté Economique et Monétaire de l’Afrique Centrale) in Central Africa. In return for the peg to the Euro, these countries deposit a substantial share of their foreign-exchange reserves at the Banque de France. Currently, the sum is 6.300 trillion CFA Franc, equivalent to € 9.6 billion. This is a lot of money for governments of poor nations that desperately need funds to develop their economies.

UEMOA’s central bank is called BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest). It is an independent institution modelled after the European Central Bank, and like the ECB, it seems to worry only about fighting inflation. Strict monetary policy means there is a lack of liquidity in the real economy. Commercial banks in West Africa are forced to charge high in-terest rates. As a result, small and mid-sized enterprises struggle to get access to the capital they need to grow. Many companies are going bankrupt; others are becoming over-indebted.

Today, the CFA zone is stuck in stagnation wheras other West African economies are flourishing. The irony is that UEMOA is the most advanced customs union in Africa. It has enforced many regional-integration policies and has seen economies converge to a large extent. Inflation is indeed low, especially in comparison with the neighbours that do not belong to UEMOA. Nonetheless, trade is not making progress among UEMOA members, and all but one – Côte d’Ivoire – still belong to the group of Least Developed Countries (LDCs).

If West Africa’s monetary union is to finally start driving growth and development, the peg to the Euro must end. Europe’s current crisis is a good opportunity for making that happen. Only nostalgic leaders with strong ties to France will find that step difficult. It is becoming more evident every day that Africa has no priority on Europe’s agenda.

G20 meetings are increasingly substituting for the old G8 meetings. In the new context, South Africa represents our continent, because of the size of its economy. South Africa’s problems and aspirations, however, differ from those other African countries have. Its government therefore cannot speak in our name.

In truth, Africa is simply not heard at top global summits. Established and emerging powers basically see African countries as commodity suppliers. To escape that role, African states must break free from historic ties and take development into their own hands.

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