“The Economic And Political Effects Of The CFA Zone” from Ocnus.net

This is an article I first read on Nigeria Village Square, but later found out that it was originally from ocnus.net. I thought to post it here for comments. I am not an expert on CFA, but I am trying to learn as much as possible about it. So I’m waiting for your comments!

The Economic And Political Effects Of The CFA Zone
By Dr Gary K Busch

One of the most important influences in the economic and political life of African states which were formerly French colonies is the impact of a common currency; the Communuate Financiere de l’Afrique (‘CFA’) franc. There are actually two separate CFA francs in circulation. The first is that of the West African Economic and Monetary Union (WAEMU) which comprises eight West African countries (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The second is that of the Central African Economic and Monetary Community (CEMAC) which comprises six Central African countries (Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea and Gabon), This division corresponds to the pre-colonial AOF (Afrique Occidentale Française) and the AEF (Afrique Équatoriale Française), with the exception that Guinea-Bissau was formerly Portuguese and Equatorial Guinea Spanish).

Each of these two groups issues its own CFA franc. The WAEMU CFA franc is issued by the BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest) and the CEMAC CFA franc is issued by the BEAC (Banque des Etats de l’Afrique Centrale). These currencies were originally both pegged at 100 CFA for each French franc but, after France joined the European Community’s Euro zone at a fixed rate of 6.65957 French francs to one Euro, the CFA rate to the Euro was fixed at CFA 665,957 to each Euro, maintaining the 100 to 1 ratio. It is important to note that it is the responsibility of the French Treasury to guarantee the convertibility of the CFA to the Euro.

The monetary policy governing such a diverse aggregation of countries is uncomplicated because it is, in fact, operated by the French Treasury, without reference to the central fiscal authorities of any of the WAEMU or the CEMAC. Under the terms of the agreement which set up these banks and the CFA the Central Bank of each African country is obliged to keep at least 65% of its foreign exchange reserves in an “operations account” held at the French Treasury, as well as another 20% to cover financial liabilities.

The CFA central banks also impose a cap on credit extended to each member country equivalent to 20% of that country’s public revenue in the preceding year. Even though the BEAC and the BCEAO have an overdraft facility with the French Treasury, the drawdowns on those overdraft facilities are subject to the consent of the French Treasury. The final say is that of the French Treasury which has invested the foreign reserves of the African countries in its own name on the Paris Bourse.

In short, more than 80% of the foreign reserves of these African countries are deposited in the “operations accounts” controlled by the French Treasury. The two CFA banks are African in name, but have no monetary policies of their own. The countries themselves do not know, nor are they told, how much of the pool of foreign reserves held by the French Treasury belongs to them as a group or individually. The earnings of the investment of these funds in the French Treasury pool are supposed to be added to the pool but no accounting is given to either the banks or the countries of the details of any such changes. The limited group of high officials in the French Treasury who have knowledge of the amounts in the “operations accounts”, where these funds are invested; whether there is a profit on these investments; are prohibited from disclosing any of this information to the CFA banks or the central banks of the African states.

This makes it impossible for African members to regulate their own monetary policies. The most inefficient and wasteful countries are able to use the foreign reserves of the more prudent countries without any meaningful intervention by the wealthier and more successful countries. The fact that as the French GDP grows and the parity of the Euro to the dollar (the main currency of international trade) appreciates there is the constant danger that the CFA franc may be fixed at too high an exchange rate. This dampens the growth in trade between Africa and the rest of the world and allows other countries, especially in Asia, to use their more flexible exchange rates to gain market share, supplanting the Africans.

The creation and maintenance of the French domination of the francophone African economies is the product of a long period of French colonialism and the learned dependence of the African states. For most of francophone Africa there is only limited power allowed to their central banks. These are economies whose vulnerability to an increasingly globalised economy is increasing daily. There can be no trade policy without reference to currency; there can be no investment without reference to reserves. The politicians and parties elected to promote growth, reform, changes in trade and fiscal policies are made irrelevant except with the consent of the French Treasury which rations their funds. There are many who object to the continuation of this system. President Abdoulaye Wade of Senegal has stated this very clearly “The African people’s money stacked in France must be returned to Africa in order to benefit the economies of the BCEAO member states. One cannot have billions and billions placed on foreign stock markets and at the same time say that one is poor, and then go beg for money.”

How Did This Happen?

This system of dependence is a direct result of the colonial policies of the French Government. In the immediate post-war period after the signing of the Bretton Woods Agreement in July 1944 the French economy urgently needed to recover. To assist in this process it set up the first CFA amongst its African colonies to guarantee a captive market for its goods. The principal decision which resulted from the Bretton Woods Agreement was the abandonment of the Gold Standard. In short, the new system gave a dominant place to the dollar. The other currencies saw their exchange rate indexed to the dollar. The reserves of the European central banks at that time consisted of currencies of dubious post-war value and gold which had been de-pegged from the fluctuations of the currency. For this reason France needed the currencies of its colonies to support its competitiveness with its American and British competitors. De Gaulle and his main economic advisor, Pierre Mendès France met with some African leaders and developed a Colonial Pact which would enshrine this is in a treaty (with both public and secret clauses). The genius behind this was Jacques Foccart, France’s “Mister Africa”.

Decolonization south of the Sahara did not happen as de Gaulle had intended. He had wanted a Franco-African Community that stopped short of total independence. But when Sekou Toure’s Guinea voted “no” in the 1958 referendum on that Community, the idea was effectively dead. Guinea was cast into outer darkness because of its decision and a Community of sorts came into existence, but the call of full independence proved too strong to resist.

Not really having planned for it, in 1960 de Gaulle had to improvise structures for a collection of small newly independent states, each with a flag, an anthem, and a seat at the UN, but often with precious little else. It was here that Foccart came to play an essential role, that of architect of the series of Cooperation accords with each new state in the sectors of finance and economy, culture and education, and the military. There were initially eleven countries involved: Mauritania, Senegal, Cote d’Ivoire, Dahomey (now Benin), Upper Volta (now Burkina Faso), Niger, Chad, Gabon, Central African Republic, Congo-Brazzaville, and Madagascar. Togo and Cameroon, former UN Trust Territories, were also co-opted into the club. So, too, later on, were Mall and the former Belgian territories (Ruanda-Urundi, now Rwanda and Burundi, and Congo-Kinshasa), some of the ex-Portuguese territories, and Comoros and Djibouti, which had also been under French rule for many years but became independent in the 1970s. The whole ensemble was put under a new Ministry of Cooperation, created in 1961, separate from the Ministry of Overseas Departments and Territories (known as the DOM-TOM) that had previously run them all.

The key to all this was the agreement signed between France and its newly-liberated African colonies which locked these colonies into the economic and military embrace of France. This Colonial Pact not only created the institution of the CFA franc, it created a legal mechanism under which France obtained a special place in the political and economic life of its colonies.

The Pacte Coloniale Agreement enshrined a special preference for France in the political, commercial and defence processes in the African countries. On defence it agreed two types of continuing contact. The first was the open agreement on military co-operation or Technical Military Aid (AMT) agreements, which weren’t legally binding, and could be suspended according to the circumstances. They covered education, training of servicemen and African security forces. The second type, secret and binding, were defense agreements supervised and implemented by the French Ministry of Defense, which served as a legal basis for French interventions. These agreements allowed France to have predeployed troops in Africa; in other words, French army units present permanently and by rotation in bases and military facilities in Africa; run entirely by the French.

According to Annex II of the Defence Agreement signed between the governments of the French Republic, the Republic of Ivory Coast, the Republic of Dahomey and the Republic of Niger on 24 April 1961, France has priority in the acquisition of those “raw materials classified as strategic.” In fact, according to article 2 of the agreement, “the French Republic regularly informs the Republic of Ivory Coast (and the other two) of the policy that it intends to follow concerning strategic raw materials and products, taking into account the general needs of defence, the evolution of resources and the situation of the world market.”

According to article 3, “the Republic of Ivory Coast (and the other two) inform the French Republic of the policy they intend to follow concerning strategic raw materials and products and the measures that they propose to take to implement this policy.” And to conclude, article 5: “Concerning these same products, the Republic of Ivory Coast (and the two others) for defence needs, reserve them in priority for sale to the French Republic, after having satisfied the needs of internal consumption, and they will import what they need in priority from it.” The reciprocity between the signatories was not a bargain between equals, but reflected the actual dominance of the colonial power that had, in the case of these countries, organised “independence” a few months previously (in August 1960).

In summary, the colonial pact maintained the French control over the economies of the African states; it took possession of their foreign currency reserves; it controlled the strategic raw materials of the country; it stationed troops in the country with the right of free passage; it demanded that all military equipment be acquired from France; it took over the training of the police and army; it required that French businesses be allowed to maintain monopoly enterprises in key areas (water, electricity, ports, transport, energy, etc.). France not only set limits on the imports of a range of items from outside the franc zone but also set minimum quantities of imports from France. These treaties are still in force and operational.

The creation of such a system was not the preserve of the French National Assembly or the result of any democratic process. It was the result of policies conducted by a small group of people in the President’s office, the ‘African Cell’, initially led by Foccart. For the past half-century, the secretive and powerful “African Cell” has overseen France’s strategic interests in Africa, holding sway over a wide swath of former French colonies. Acting as a general command, the Cell uses France’s military as a hammer to install leaders it deems friendly to French interests. In return, these countries give French industries first crack at their oil and other natural resources. Sidestepping traditional diplomatic channels, the Cell reports only to one person: the president. The Cell’s close ties to oil giant Elf Aquitaine, where top executives were jailed on corruption charges, was a source of embarrassment. And a former Cell chief has now been convicted of charges related to arms trafficking to Angola. These highly contentious policy issues never came before any of France’s democratically-elected bodies. African policy is the personal fiefdom of the President’s office.

This was true for De Gaulle, Mitterand, Giscard D’Estaing and Chirac. Sarkozy apparently has no contacts or ambitions in this field and has left Chirac’s Cell in place.

The Impact of the Colonial Pact

Some of the consequences for the Africa countries of the continuation of a policy of dependence are obvious – lack of competitive options; dependence on the French economy; dependence on the French military; and the open-door policy for French private enterprise. However, there are more subtle differences which arise.

The French companies in francophone Africa, by virtue of their protected monopolistic or oligarchic status, contribute a substantial share of the GDP of these countries. More importantly, however, they are often the single largest group of taxpayers. In many of these countries the French corporations pay over 50% of the national tax revenues collected. This gives them a unique status. Quite frequently the French say that without the French companies the economy of the African state will collapse. When coupled with the inability of the country to access its reserves it undoubtedly true. However, it doesn’t follow that private corporations from other countries, like the U.S. or China, would not contribute equally. This is one reason that the French are so concerned with allowing competition into the market place.

Another aspect of this is the inability of these francophone countries to collect taxes from its ordinary citizens. In a country like the Ivory Coast which has been divided for a number of years between the rebel North and the loyalist South, tax collections in the rebel regions have been impossible. The rebels have waxed fat on taxes and fees imposed on their captive populations and the sale of stolen goods from their regions. They do not want to disarm because it will have a deleterious economic effect on them, not just a political one.

The lack of a citizenry paying taxes breeds a gulf between the government and the citizens; mutual responsibility is missing in the equation. It is the job of the National Assembly to legislate for programs based on the supply of revenue to the state, but if there are insufficient revenues the National Assembly is frustrated in its role. If 80% of the funds go to France as part of the CFA franc project there is little left for the ministers and the National Assembly to allocate for social programs.

In many of the francophone countries, suffering under conditions of drought, lack of food; lack of health care; it is only French ‘aid’ to the national treasuries that sustains them. This ‘aid’ is often their own money which the French have shepherded for them.

There are many in Africa who have seen and understood the problem of the CFA franc and the Colonial Pact. Mamadou Koulibaly, the President of the National Assembly in the Ivory Coast has been an outspoken critic of the Colonial Pact and the dominance of the CFA franc. He has written an excellent book on the subject and gives speeches and interviews on the subject regularly. The problem is that very few people understand the fundamental iniquity of this French system; including many Africans.

If African nations are to achieve growth and participate fully in the opportunities of globalisation they must be freed from the fetters of this colonial albatross. In order to attract additional direct investment in the economies, as opposed to just portfolio investment this situation must be changed. In the words of President Koulibaly, “In Africa we do not need alms, our problem is not due to a lack of money. My conviction is that we must first of all clearly state our ownership rights over our own land and the resources in our soil which were taken away by the colonialists when they conquered our countries, and still be taken away through the Colonial Pact”.