Dr Ernest L. Molua, Associate Professor of Agricultural Economics, University of Buea.
Finance Ministers of the Franc Zone with governors of central banks just met in a forum in France to discuss the financial and economic health of its economies. How do you appraise the willingness by France to renegotiate the agreement linking 15 African countries to the CFA Franc?
Revisiting, reviewing and eventually revising the cooperation agreements signed on the eve of independence between France and its former African colonies is an important first step to untie the yoke that impedes economic growth and development in the region. Following the recently concluded forum of finance ministers of the Franc zone in Paris, that it featured on its agenda the examination of all monetary agreements between France and the countries of the Franc Zone is sign of progress. African countries must build on this momentum, be intellectually committed, politically bold and economically aggressive to push on this particular agenda in order to obtain favourable terms and positive outcomes from an eventual revision of this agreement.
In the months ahead, African states must allow serious well-meaning domestic debates on the virtues of the common currency. More than fifty years after independence, it is time to take stock if the common currency has properly served our economies, and what are the alternative possibilities. Without scholarly research and intellectual debates on the issue it would be hard to conclude whether we have been properly served by a common currency. Only when we have such healthy debates and research, then we would be able to seize on opportunities and build on the momentum from the comments by Michel Sapin French Minister of Finance and Public Accounts, who was asked about the possibility for African countries to renegotiate the terms of the monetary cooperation agreement linking the countries of the Franc zone and France, and he said: "This is a debate that has existed ever since the creation of the CFA zone. What I can say from the French side is that we are in a space that is a desire shared space. It is a space where everyone is respected, where everyone can suggest a number of solutions. The franc zone is not a static area; it is not a historical area. This is an area that is dynamic. If there is on the part of each other in academic or political proposals, well, we will discuss together with the spirit of respect and equality.”
What do you think African countries of the Franc Zone stand to benefit having their own currency?
Without doubt, in the current status quo, the CFA franc benefits the French more that the African states. Three thousand billion Euros of African money is held in the French treasury, and the fifteen African states using the CFA Franc are the clients of this treasury. This money could do more to African economies if they had immediate control and could command its use at short-notice. But this is not the case. The bureaucracy involve in accessing this money, implies it is more like confiscated money. This was definitely the wisdom of General Charles de Gaulle in 1958 when he promoted the ‘Franc of the French Community of Africa’ (FCFA) for French colonies of West and Central Africa. The operating account was then designed and formulated primarily to serve the interests of France. Lodging 65% of foreign exchange reserves in the French Treasurer serves no one better than the owner of the treasury where this reserve is deposited. Recall that this savings mobilised as such is at the disposal of the French treasury for its exploitation until such a time that it is recalled and released to its depositors. And even worse, there is a limit of 20% of public revenue on the amount of money the countries may withdraw from the reserve.
With hindsight, this may be an unfair arrangement. Franc CFA economies under such arrangement have not fared better than similarly endowed economies that opted out of the FCFA arrangement such as Tunisia in 1958, Morocco in 1960, Guinea in 1959, Algeria in 1964, Madagascar and Mauritania in 1973. Cameroon’s economy, for instance, does not fare better than that of Kenya, Botswana and Ghana having their national currencies. The wisdom with which Guinea-Conakry, under Sékou Touré, rejected the offer and left the franc zone in 1960 still holds, since the disadvantages of this arrangement outweigh the advantages. The advantages are merely about lower transaction costs, that is, elimination of the costs of converting the currency against major currencies and elimination of exchange rate uncertainty. The disadvantages are more substantive, and include decreased domestic investment by nationals given the inability to access liquidity and the expensive nature of recouping reserved funds from French Treasury, low foreign investment by foreign investors since these economies seem more ‘inflated’ with higher local prices compared to similarly endowed economies in the African continent, Asia or Latin America; ease of importation of external shocks and contagion by poorly performing economies within the CFA arrangement and more importantly the inability for respective member states such as Cameroon to use monetary policy to boost domestic investment given the ‘one size fits all monetary policy’ adopted for the management of the CFA franc currency. Fifty years after independence these African states are matured and ready to design, implement and manage their monetary policy.
Observers hold that if economies of the Franc zone are dangling, blame should be on the Franc currency. Popular opinion therefore holds that having a unique currency is leeway to prompting economies of the zone to sustainable growth. Are you of this opinion?
The current arrangement of the Franc CFA is anathema to any wisdom for economic growth and development. It does not favor exports and trade; it does not favor industrialization and keeps prices of inputs and finished commodities high. It no longer makes sense in the 21st century. Countries no longer need colonial guarantees for monetary management and lessons on monetary policy. Compared with other countries, growth in the CFA zone has been lower since 2001, partly because of the high costs of doing business in a currency tied to the euro and to tight credit policies in the CFA zone. A currency pegged to the Euro means high export prices, a limitation to investments from well-meaning foreign investors and slow economic growth in the zone. Investment, whether public or private, domestic or foreign is the panacea to economic growth and development. The arrangement within the CFA franc defeats the possibility of relying on big-push investments to move our economies forward. Significant fear has been injected in the minds of policy makers and economic managers of this zone by overplaying the disadvantages of opting out of the Franc zone. The wisdom of England opting out of the Euro and the lessons from Asian tigers that have their own currencies reveal that African lions too like Cameroon can overcome the difficult path of having a unique currency and properly manage their monetary policy. Overcoming financial servitude will require franc and honest debate on the issue in national parliaments, and a timeline to commence the process of financial liberation.