The Iron Grip of the CFA Franc

What is wrong with Africa? Of the world’s twenty-five poorest countries, twenty-one lie south of the Sahara. Crowded streets and informal markets from Dakar to Mombasa teem with hawkers selling candles, batteries, matches, toys, condoms, plastic cups, nylon wedding gowns, fake jewelry, and other cheap imports, but the region itself manufactures almost nothing. Forty percent of the components in Samsung’s phones are made in once-impoverished, war-torn Vietnam. None are made in Africa, even though some of the materials used to produce them are mined there. Factories, service companies, and other modern industries are scarce. Many African countries report impressive economic growth rates of 6 or 7 percent, but this largely benefits a tiny elite—mainly those involved in oil and mineral extraction and recipients of lucrative and often corruptly administered government contracts.¹

The countries of the Sahel, the bone-dry expanse along the Sahara’s southern edge, including Mali, Burkina Faso, Niger, and Chad, are among the world’s most unstable. They are beset by jihadist terror attacks, kidnappings, and massacres, and have seen seven coups d’état and thirteen coup attempts since 2010. But these countries are also home to roughly 135 million ordinary people trying to live in dignity, raise families, and avoid succumbing to premature death. Roughly 80 percent of them live on less than two dollars a day. Sahelian children are almost thirty times more likely to perish than Western European children, mostly from malnutrition and easily curable diseases like pneumonia and diarrhea, and boys spend about three years in school, on average—girls even fewer.

Poverty in Africa, and the Sahel in particular, affects us all. Millions of migrants flee their communities each year, many heading for Europe, where nationalist politicians stoke populist rage against them in order to advance their own right-wing programs. Among those who remain, the Islamic State, Boko Haram, and al-Qaeda find eager recruits whose terrorist activities have drawn the armies of the US, Italy, France, Germany, and Belgium into the region. Meanwhile, the Wagner Group, a mercenary outfit linked to the Russian government, now supports the militaries of Nigeria, Chad, Sudan, and other countries, creating a neo–cold war checkerboard of Western- and Russian-allied forces across the continent. After the coup in Mali in 2021, the Wagner Group was invited in, and the French troops previously deployed there departed.

Africa’s poverty and instability are typically attributed to causes internal to the continent: corruption, bad leadership, overpopulation, and insufficient entrepreneurial know-how. “Change…must come predominantly from within,” wrote the Oxford development economist Paul Collier in his best seller The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It (2007). He and others called for increased foreign aid, training of peacekeepers and military personnel, Christian faith, family planning, education for girls, anti-malaria bed nets, new economic incentives, and many other things. But like seeds thrown on the hardpan Sahelian landscape, these proposals, even when implemented, have failed to produce sustained and significant economic growth.

Two new books, Africa’s Last Colonial Currency by the French journalist Fanny Pigeaud and the Senegalese economist Ndongo Samba Sylla and The CFA Franc Zone by the former World Bank official Ali Zafar, address one factor most experts overlook: the CFA system, a monetary structure that governs the economies of fourteen African countries, most of them former French colonies. Not all troubled African countries are subject to the CFA system, but as Zafar concisely shows, those that are tend to have lower rates of economic growth, higher poverty rates, and worse corruption than other African countries. As a percentage of GDP, they invest less in public services, and they offer businesses far less private credit. African countries that aren’t CFA members are subject to similar though slightly less draconian conditions imposed by the International Monetary Fund (IMF), so the CFA system provides a particularly clear illustration of a sub-Saharan Africa–wide problem.

The CFA countries—Mali, Niger, Senegal, Togo, Cameroon, Chad, Côte d’Ivoire, Central African Republic, Guinea-Bissau, Equatorial Guinea, Benin, Congo-Brazzaville, Gabon, and Burkina Faso—all use a currency called the Communauté Financière Africaine (African Financial Community) or CFA franc, the value of which is fixed at 656 to the euro.² Virtually all other world currencies fluctuate in value relative to others based on such factors as economic conditions in the country and political crises like wars. Central banks in rich countries like the US Federal Reserve, the Bank of England, and the Banque de France also adjust the value of their currencies by raising or lowering interest rates or printing additional banknotes. In an emergency, such as a drought or pandemic, countries with flexible currencies can print money to help people and businesses survive and keep public services running—as the US did when Covid-19 struck.

The CFA countries can’t do this. Since its creation, the CFA franc has undergone a handful of sharp, painful devaluations, but otherwise its value has remained fixed from year to year. This ensures that the money these poor countries use to purchase oil and pay interest on loans from the IMF and other international banks maintains its value. However, it also makes it impossible for their governments to use the monetary system to raise money for improvements in health care, education, transportation, the power grid, and other public goods that might foster development. Joe Biden’s infrastructure and Build Back Better bills would be inconceivable in these countries.

The CFA system does nearly eliminate inflation, which can be ruinous for the poor. But some economists argue that African economies can actually tolerate higher inflation rates than Western ones can. While high inflation tends to be harmful in rich countries where most people are consumers, inflation rates of up to 12 percent have been associated with economic growth in poor ones—where most people are producers—because they make exports cheaper. Strategic devaluation helped countries like Vietnam, where a dollar now buys 23,000 dong, stay competitive.

In the CFA franc’s defense, The Economist notes that “over the past 50 years inflation has averaged 6 percent in Ivory Coast, which uses the CFA franc, but 29 percent in neighbouring Ghana,” which does not. What The Economist doesn’t mention is that today only 13 percent of Ghanaians live in extreme poverty, while nearly 30 percent of Ivorians do. Ghana has also received far more foreign direct investment than Côte d’Ivoire, even though its currency isn’t instantly convertible into euros, as the CFA franc is. That easy convertibility is also a liability: between 1970 and 2010 Côte d’Ivoire lost about $40 billion to capital flight, meaning that far less of what little was earned inside the country was invested in development. According to the UN economist Janvier Nkurunziza, keeping that money in Côte d’Ivoire could have sped poverty reduction by 10 percent each year.

The CFA franc’s value is managed by two regional banks, the Central Bank of West African States (BCEAO), which governs the monetary policy of Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal, and Togo, and the Bank of Central African States (BEAC), which does so for Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and Congo-Brazzaville. When a country’s monetary reserves fall, perhaps because of a drop in the value of exports or a crisis necessitating increased public spending, the regional banks order its government to cut public spending and tighten credit. This means that just when a country needs money to cushion the effects of a shock, it’s unable to raise it.

To maintain the exchange rate, the regional banks also ensure that commercial banks in the CFA countries set strict borrowing conditions, with high interest rates and steep collateral requirements for business loans. As a result, banks in Niger, one of the world’s poorest countries, lend money at interest rates of up to 27 percent; according to USAID, only one percent of the population has access to financing from a formal lending institution.

Last year, I’d hoped to visit Niger to find out more about what it was like to live under such a restrictive financial system. Because of the pandemic, I was unable to travel, so I arranged video interviews with about a dozen Nigeriens of various backgrounds who testified to how lack of credit had been ruinous for them.

Rahanna, aged thirty-five, used to run a profitable food stall selling fried doughnuts and millet porridge in the farming town of Madarumpha. In 2017 locusts swept through, devouring entire fields overnight. The markets nearly emptied out and prices for what remained soared. To keep her business going, Rahanna borrowed oil, kerosene, and other supplies from a wholesaler, but he demanded repayment before her business recovered. She begged for more time to raise the money, but he refused, and a few days later, enforcers arrived at her door and took everything she owned—clothes, cooking utensils, bed. As famine set in, several of Rahanna’s relatives succumbed to disease—even a simple fever can kill you when you’re malnourished.

Today Rahanna lives in a garbage dump in a slum in Niger’s capital, Niamey. She constructed a small hut from plastic sacking and other scraps and earns about two dollars a day sorting through heaps of trash for plastic to sell to recycling companies. She is able to send a portion of this to her family back in Madarumpha. When I spoke to her, she longed to go home and restart her business, but needed forty dollars to pay off her debt. (Sometime later I sent her the money.)

Abdulahi used to run one of Niger’s largest travel agencies, arranging plane tickets for NGOs, sports teams, and government agencies. He told me that in 2016, he’d won a government contract to fly three thousand pilgrims to Mecca for the annual Hajj, but for complicated reasons the government decided to cancel it. Unfortunately, he’d already chartered an airplane, hired the crew, and booked accommodation for the pilgrims—all with nonrefundable deposits amounting to over $1 million. While awaiting government compensation, he was awarded another contract to purchase plane tickets for the national soccer team. Having lost nearly all his capital in the Hajj fiasco, he borrowed money from an acquaintance and bought the tickets well in advance at a good price. A bank loan would have entailed 18 percent interest, collateral he didn’t have, and weeks if not months of delay. But Abdulahi’s acquaintance turned out to work for a rival travel agency, and he demanded payment on the loan before the soccer team paid Abdulahi. In Niger, people can be imprisoned for debt, and Abdulahi spent six months behind bars. Nearly everyone he met there had also been imprisoned for debt.

Between 2010 and 2017, nearly a million migrants left sub-Saharan Africa for Europe. Much of the blame for this has been placed on the effect of climate change on farming communities, but according to the American University geographer Jesse Ribot, who has studied such communities for decades, drought, locusts, and other natural disasters are not the primary reasons people flee the Sahel. Global warming is already creating unstable weather patterns, but the Sahel has actually become greener in recent decades, as the harsh droughts of the 1970s and 1980s have subsided and new forestry methods have been introduced.

Like the Joad family in John Steinbeck’s The Grapes of Wrath, Niger’s poor are being ruined not by nature but by bankers. The novel opens with the arrival of “owner men” who inform the Joads that they’re being kicked off the land they’ve been working for generations. Tom Joad pleads with the owner men to let them stay. The drought won’t last forever, he says; the land can be revived with crop rotation, and demand for cotton will surely rise. “Can’t we just hang on?” No, the owner men say. The bank “has to have profits all the time…. It can’t stay one size.”

Europe pumps about $25 billion in development aid into Africa each year, and the US and other donors pump in billions more. Much of this money goes to vocational training, the creation of small and medium-sized businesses, sustainable agriculture, and other projects to stimulate economic activity. Unfortunately, the results tend to be dismal. Most projects supported by the EU Trust Fund for Africa have created very few jobs, according to its own website. One reason is that the projects tend to be managed by Europeans, who seldom visit them. For example, an EU-supported cashew-processing project in Mali collapsed when equipment broke down and the cashews spoiled. The Malians weren’t able to do anything about it because the finances were controlled by European managers whose attention was elsewhere.³ Africa’s volatile markets and supply chains can only be negotiated by people with a personal stake in a business’s success. As Soviet economists learned the hard way, planning from above seldom works.

If the CFA system is so onerous, why don’t African leaders scrap it? As Pigeaud and Sylla demonstrate, many tried and paid dearly, sometimes with their lives. France’s iron grip on its former colonies and its corrupt and often lethal plots against popular left-leaning African leaders have been richly documented by such authors as François-Xavier Verschave⁴ and in the film Françafrique (2010) by Patrick Benquet. Pigeaud and Sylla make the case that preservation of the CFA has been an overlooked but crucial motivation for France in these schemes.

The problems began early in the decolonization process. In August 1958, two months before independence, Guinea-Conakry’s future president Ahmed Sékou Touré told French president Charles de Gaulle that he wanted Guinea to remain in the CFA system, but he also wanted the economy to be less subject to French control so its government could make independent trade agreements. France declined to negotiate the matter. That September, a referendum was held in which Guineans voted overwhelmingly not to join the Communauté française—or French Community—a new and short-lived alliance of former French colonies. As soon as the result was announced, the French withdrew Guinea’s monetary reserves, cut pensions to soldiers who’d fought in World War II, and began dismantling the electrical grid. They even tried to block Guinea’s membership in the UN.

Negotiations over the CFA went on for two years, until finally, in 1960, Touré created a new Guinean central bank and launched a new Guinean currency. France responded by backing local mercenaries to menace his regime and pouring fake Guinean banknotes into the economy, causing it to collapse. This exacerbated Touré’s paranoia, and he embarked on a program of widespread torture and killing, particularly of intellectuals believed to be working for France.

Similar problems brewed in Mali when President Modibo Keïta, concerned that the CFA was stifling diversification of the economy, launched a new Malian franc in 1962. Other CFA countries restricted trade with Mali, and Malian merchants staged protests outside the French embassy, chanting, “Long live France! Long live de Gaulle!” They were arrested, accused of colluding with France—which they probably were—and imprisoned for life. Some were reportedly tortured and killed.

In Togo around the same time, President Sylvanus Olympio, a graduate of the London School of Economics and a former director of Unilever-Togo, also called for more flexibility in issuing credit. At first the French refused, but in September 1962 they seemed willing to accept this, and an agreement between Togo and France for a new Togolese franc and central bank was reached. But it was never implemented. Four months later, in January 1963, Olympio was shot dead by Togolese soldiers who had once served in the French army. Olympio’s interior minister accused France of organizing his assassination. French and US archives concerning the matter remain closed.⁵

The 1987 assassination of Burkina Faso’s president Thomas Sankara may also have been partly motivated by his criticism of the CFA franc;⁶ Sankara’s widow has accused France of complicity in his death. Niger’s Hamani Diori and Ivorian president Laurent Gbagbo, both CFA skeptics, were also overthrown with French assistance in 1974 and 2011, respectively.

Few of these anti-CFA heads of state were model democrats, but the constant threat of French meddling and the hobbling of their countries’ economies via the CFA system undoubtedly helped foster their tendency to resort to repression. In any case, the French cronies who came to power in their places also abused their people’s rights with impunity, and some continue to do so today.

The strict CFA system, with its curbs on public spending and bank loans, might seem like a good way of controlling Africa’s notorious corruption, but it actually makes things worse. In most sub-Saharan African countries, survival is virtually impossible without recourse to illegal string-pulling, bribery, skimming of taxes and customs fees, and extracting payment for public services like health care and education that are supposed to be free. These behaviors are facilitated by government officials who practice influence-peddling and favoritism in the awarding of contracts and positions; create ghost pensioners, phony tax collectors, and artificial shortages to extract bribes; forge official documents such as passports, medical degrees, and examination certificates; and facilitate the “escape” of items like stethoscopes and even ultrasound machines from hospitals. The Sahel is now a major hub for trafficking in narcotics and even babies for adoption.

“Corrupt transactions…have their codes and ‘practical rules,’ their skills, decorum and etiquette,” write the anthropologists Giorgio Blundo and Jean-Pierre Olivier de Sardan in Everyday Corruption and the State: Citizens and Public Officials in Africa (2006). You have to bribe the midwife or you’ll risk dying in childbirth; you have to bribe the government official if you want to be considered for a contract; you have to pay tribute to the chief if you want to benefit from development projects.

People seldom complain because everyone understands that corruption maintains the skein of relationships that keeps destitution at bay. If the underpaid government teacher or policewoman didn’t take bribes, she would not be able to feed her children; if the rich judge didn’t do the same, he would fail his large extended family and other hangers-on, who depend on him for handouts to pay for emergency health care, school fees, business start-up funds, and countless other expenses. In these societies, it’s disgraceful for a rich person to have poor relatives. When Abdulahi’s travel agency was flourishing, he told me, he supported about fifty people directly, plus the people who depended on those people, and so on.

The political scientist Jean-François Bayart has likened Africa’s interlinked and interdependent corrupt relationships to rhizomes—the dense underground networks of roots that sustain bamboo, ginger, and other plants that appear separate above ground. What he didn’t mention is that the corruption rhizome extends to France itself. French investigators have revealed that dictators from Gabon and other oil-rich CFA states funneled bribes to French politicians, including former presidents Jacques Chirac and Nicolas Sarkozy. After being overthrown in a French-backed coup, Jean-Bédel Bokassa, who called himself emperor of Central African Republic, revealed that in 1973 he’d given then French finance minister (and later president) Valéry Giscard d’Estaing a “plate of diamonds” as a birthday gift. Giscard claimed he sold them and donated the money to a hospital in Central African Republic.

Opposition to the CFA system has grown in recent years, leading to street protests in many countries. French-owned businesses in West Africa have seen their windows smashed and buildings torched. To divert popular outrage, French president Emmanuel Macron and Ivorian leader Alassane Ouattara announced in December 2019 a plan to reform the CFA system in eight West African countries, including Niger, Côte d’Ivoire, and Senegal. Until then, 50 percent of the monetary reserves of these countries were held in “operations accounts” in the French treasury, an apparently profitable arrangement for France.

For example, in 2014 France paid the CFA countries interest of 0.75 percent on their operations accounts, well below the prevailing base rate in France—then between 0.92 percent and 2.38 percent. So the Africans were effectively paying France to hold their money. It’s possible that France reinvested that money and then pocketed the profit. We don’t know for sure because French policy forbids disclosure of this information, even to the leaders of the countries whose money it was. Nor were CFA governments allowed to invest this money elsewhere or use it as collateral for loans. It functioned as if it were French money. Sometimes the paltry interest the Africans did receive was repackaged as a development loan, which the countries were then required to repay to France.⁷

The Wall Street Journal celebrated the Macron-Ouattara reforms when they were announced three years ago, but others saw them as part of yet another devious French operation. The value of the CFA franc is still pegged to the euro, and bank loans are as hard to get as ever. West Africa’s monetary reserves are no longer held in the French treasury, but it’s not clear where they are or whether they are earning anything, and if so, how much. For the dollar, pound, and euro, this is public information, but when I asked BCEAO officials in Paris and Dakar, Senegal, where the organization’s CFA reserves were and how much they were earning, I received no reply.

In The CFA Franc Zone, Ali Zafar outlines a novel alternative to the CFA system. The details are complex, but the gist is that the countries of the current CFA zone could be split into groups with similar types of economies—say, oil producers in one group and oil importers in another. Each group would have its own currency, whose value would fluctuate relative to other world currencies. The fluctuations would be managed by African economists in ways that would benefit their group of countries. Inflation might increase somewhat, but freer lending would open up opportunities, so economies could grow and fewer entrepreneurs like Rahanna and Abdulahi would end up in garbage dumps or behind bars. As more businesses survived, the tax base might increase, enabling more public investment in infrastructure, which would help attract foreign investment. This is essentially what happened in Germany after World War II and in China in the decades after 1980, when cheap credit drove expansion throughout the economy.

Higher tax revenues would also enable the state to pay teachers, police, and nurses more, which might reduce corruption. People might feel sufficiently empowered to confront corrupt officials and institutions as Upton Sinclair, Ida Tarbell, and other muckrakers did during the Progressive Era in the US.

This rosy scenario is obviously speculative, but continuing to do nothing is extremely dangerous. West Africa’s military coups are partly driven by popular anger over the failure of civilian governments to stanch a surge in jihadist violence, despite enormous American and European military assistance. It isn’t clear that the coup leaders will succeed either, but perhaps it’s time to think about the problem differently.

A major driver of jihadist recruitment is injustice. In Niger, for example, the ranks of the Islamic State are swollen with pastoralists whose animals were taken with impunity by soldiers, police, and militias—some backed by French forces. Niger’s underfunded, corrupt courts seldom do anything about this. Courts run by the Islamic State administer harsh justice but are generally seen as fairer and less corrupt than the government ones.⁸ If the Niger government had the resources to properly pay and discipline its own security forces, and to run a less corrupt justice system, young people might find jihadism less attractive. Scrapping the CFA system—and the IMF’s similar austerity constraints in other countries—might not lead to a virtuous cycle of economic growth and reduced corruption and violence, but Africa’s beleaguered people have nothing to lose by seeing if it does.

—April 28, 2022