Opinion
Franc zone African states should emancipate from France, build relations with China and the rest of Africa
These developments are motivating American and European investors to rethink their strategies in Africa, prompting a terms-of-trade revival and generating interest in Africa’s expanding regional markets.
But progress has not been evenly distributed across Africa. Some countries – for example: Angola, Ethiopia, Ghana, Kenya, Mozambique, Nigeria, Rwanda, South Africa, Uganda, and Zimbabwe – have benefited substantially from Chinese involvement, and now rank among the world’s fastest-growing economies. But others – including the 14 countries that form the franc zone (12 of which are former French colonies) – lack major Chinese investment, and are missing out on Africa’s economic boom.
The franc zone’s plight is being compounded by distorted and dysfunctional economic and monetary policies.
While gross domestic product (GDP) growth in the CFA franc zone largely outpaced the rest of Africa in the 1990’s, it has since stalled. Furthermore, the CFA zone has yet to establish a functional common external tariff, and intra-franc-zone trade stands at a mere 12 percent of its members’ total exports and imports.
In this context, the decision to retain the CFA franc, a freely convertible common currency that is pegged to the Euro at a significantly overvalued exchange rate, is dubious. The current scheme breeds structural fiscal deficits, excessive reliance on imports, endemic corruption, money laundering, narcotics trafficking, and massive capital flight.
Particularly damaging is the US$17.7 billion in foreign exchange reserves that France keeps in a special Treasury account at an interest rate of only 1.5 percent, thereby guaranteeing the convertibility of the CFA franc, which it underwrites.
In other words, France uses African reserves to finance part of its budget deficit at a concessional interest rate.
