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Editorial: Africa’s Franc Zone Lacks Major Chinese Investment

Editorial: Africa’s Franc Zone Lacks Major Chinese Investment

China’s combination of investment and trade in Africa is motivating U.S. and European investors to rethink their strategies there, but Chinese business has not been evenly distributed across the continent, according to an editorial in BusinessDay.

Some countries – for example, Ghana, Nigeria, Kenya, Ethiopia, South Africa, Rwanda, Uganda, Angola, Mozambique, and Zimbabwe – have benefited substantially from Chinese involvement, and now rank among the world’s fastest-growing economies, the editorial said. 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.

In the BusinessDay editorial, Sanou Mbaye, a Senegalese investment banker, called on franc-zone leaders to “break the cycle and chart effective national development strategies for their countries.” They should begin by pursuing complete emancipation from France, abandoning the CFA (African Financial Community) franc, and building relations with China and others who want to pursue mutually beneficial trade and business with Africa, Mbaye said.

The CFA franc is the name of two currencies used in Africa that are guaranteed by the French treasury.

The franc zone’s plight is being compounded by distorted and dysfunctional economic and monetary policies, said Mbaye, who is a former senior manager of the African Development Bank and author of “L’Afrique au secours de l’Afrique,” (Africa to the Rescue of Africa).

While gross domestic product growth in the CFA largely outpaced the rest of Africa in the 1990s, it has since stalled, he said. The CFA has yet to establish a functional common external tariff, and intra-franc-zone trade stands at 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, Mbaye said. He claims the process breeds structural fiscal deficits, excessive reliance on imports, endemic corruption, money laundering, narcotics trafficking, and massive capital flight.

Particularly damaging is the $17.7 billion in foreign-exchange reserves that France keeps in a special treasury account at an interest rate of 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.

Meanwhile, French banks charge at least 5 percent to 6 percent interest on the loans that they grant to African governments to finance their budget deficits. With the commercial lending rate at a high of 18 percent, bank credit to the franc zone’s private sector has dropped to 12.7 percent of GDP, compared to 36.5 percent in sub-Saharan Africa and 78.9 percent in South Africa, the region’s leading economy, Mbaye said.

Senegalese Prime Minister Abdoul Mbaye has cited high interest rates as a major impediment to GDP growth. At a conference in November marking the Central Bank of West African States’ 50th anniversary, Senegalese President Macky Sall pleaded for an interest-rate reduction.

But neither France’s near-total control of money and credit, nor its strong influence over politics and security, is wholly responsible for keeping the franc-zone countries mired in poverty and instability, Mbaye said. By misappropriating public funds for personal use, franc-zone leaders serve as accomplices to France’s institutionalized exploitation of CFA countries and citizens.

Côte d’Ivoire, the franc zone’s leading economy, was a net rice exporter in the early 1970s, until the country’s elite followed the advice of French expatriates to import rice rather than produce it. With the help of import licensing, then-Finance Minister Konan Bédié earned his first billion CFA francs within a year. Around the same time, Félix Houphouët-Boigny, the former Ivorian president and a figurehead of African independence movements, publicly warned Africans of the risks of keeping their fortunes in Africa.

More recently, Karim Wade, the son of former Senegalese President Abdoulaye Wade, was arrested on suspicion that he amassed a fortune of roughly $1.5 billion during his father’s presidency, when he held senior ministerial positions.