Really good article! A couple things to point out:
1. It's not just inflation that these countries are worried about, but also borrowing in foreign currency. President Ouattara of Ivory Coast explicitly said he likes the CFA franc because he doesn't have to worry about foreign exchange depreciation risk when he borrows in Euros. Meanwhile, my country Ghana just defaulted on a eurobond in December 2022.
Ouattara "“The fact that we are pegged to the euro, if we borrow euros, by the time to repay them in five or 10 years, the rate is fixed, it is thanks to this fixed parity."
2. My concern with the replacing the CFA franc is what comes after. Some of these countries run chronic current account deficits, and even the idea of devaluating your currency to export more wouldn't fly with the populace most of these countries have terrible subsistence agricultural food yields and import all their food needs. There would be (and have been) riots from currency devals.
Countries that have chronic current account deficits in the CFA franc: Senegal, Mali, Niger, Benin, Togo,
Countries that have had occasional surpluses: Cameroon, Burkina Faso, Guinea-Bissau, Congo-Brazzaville, Gabon
These are thoughtful points, and I agree with both. It would be a disaster if in transitioning out of the CFA, the new currencies rapidly depreciated, causing both debt crises and spikes in import food prices. In the short run, the key will be a carefully managed exit towards a peg or a managed float against a more appropriate basket of currencies—ideally with the backing of a credible organization like the IMF.
But in the medium to long run, it seems to me having a more appropriately valued currency is a necessary complement to getting out of the trap of a subsistence economy that imports most of its food. Not saying that a manufacturing renaissance is a realistic goal in the near term, but perhaps something like the success that Kenya has seen with agricultural exports like horticulture is possible.
From the limited amount of reading I have done agriculture in Kenya doesn't seem productivity even for low income countries. Ethiopia might be a better role model for that.
One issue Kenya has is that maize price is fixed by the govt and wheat has 0% import duty (supported by the millers) which kills any wheat growing that might be possible.
How did Ethiopia get such good yield growth since 2010?
1. Ended collectivization and central planning of agriculture and allowed farmers to set their own prices in a household or cooperative
2. More mechanization/irrigation systems
3. In 2008, they made the Ethiopian Commodity Exchange(ECX). They have a trading floor and farmers trade spot contracts in coffee, sesame, maize and wheat instead of relying on traditional marketplaces, farming trade associations or government commodity procurement systems that many African countries still use.
The ECX provides warehouse delivery centers, transparent prices, large scale of volume for transactions, reduces middlemen who take portions of a farmers’ income, efficiency, speed, and risk management with futures and options contracts.
Thanks! So it seems the ECX is the most correlated change to increases in productivity. Because Kenya also doesn't have collectivization and (I believe) has more or less the same mechanization/irrigation than Ethiopia.
Feels like ECX is worth looking into more. Do you know of any good resources? Or people building this in East Africa?
I get currency stability is a very important thing, but as someone who grew up in post colonial nation, the idea of your coloniser running your monetary policy for you seems inherently offensive to me. I don't get how a nationalist leader defends this.
When Guinea left in 1958, other leaders realized that they need French support otherwise they would be an unviable state (even though French was petty).
Staying on CFA franc, keeping the French military there, getting French subsidies and keeping your whole civil service as French was seen as "pragmatic" when in reality they were keeping themselves as infants.
The african youth doesn't love France the same way the French elite once did in the 1960s.
One striking thing is how having a common currency for so many countries with differentt business cycles and almost no "internal" trade (with or without the French) is a bad idea is never discussed.
There's another benefit of having your own currency: financing the government. By printing money the government can effectively tax consumption, which taxes the informal economy and enables "tax collection" on people who don't report taxes. (I believe; I'm not an economist.)
I wonder what you think about some countries casting off French as an official language. Will AI make it easier to produce literary materials in smaller languages so that it becomes easier to do Cuba-style mass literacy programs in manylingual countries?
My instinct is that it would be easier and more useful to do mass literacy programs in languages like English and french that are spoken by hundreds of millions of people
Interesting article. Would it look any different if the growth graph continued to 2024? I'm looking at the top African countries for growth in 2024: Niger (11.2%), Senegal (8.2%), Libya (7.9%), Rwanda (7.2%), Cote d'Ivoire (6.8%), Ethiopia (6.7%), Benin (6.4%), Djibouti (6.2%), Tanzania (6.1%), Togo (6%). Half of these are West African CFA countries, including the top two. Senegal and Cote d'Ivoire in particular have had strong consistent growth in recent years, and latter is one of the strongest global economic performers over the past 15 years. I do wonder how much West Africans in the XOF zone would really want the inflation levels of Nigeria, Ghana or Sierra Leone.
Hi John, thanks for the comment. It's looking like I should do a follow-on post with an updated version of the graph, and more discussion on how a realistic transition out might look like. My guess is that CFA countries will likely still be behind in GDP terms.
Perhaps also interesting to think about the different ''zones'' within this region. Perhaps one could pick out three - landlocked Sahel countries, coastal West African countries, and central Africa. Each zone has shared characteristics which gives shared reasons for fast/slow growth beyond the currency they have. There might be more value in comparing the growth experience of Ivory Coast v Ghana than say Ghana v Niger/Congo-B, if that makes sense.
It's funny that you bring this up -- I'm also working on an academic paper that does these kinds of cross-border comparisons between non-CFA and CFA countries in a more formal statistical sense :)
Really good article! A couple things to point out:
1. It's not just inflation that these countries are worried about, but also borrowing in foreign currency. President Ouattara of Ivory Coast explicitly said he likes the CFA franc because he doesn't have to worry about foreign exchange depreciation risk when he borrows in Euros. Meanwhile, my country Ghana just defaulted on a eurobond in December 2022.
Ouattara "“The fact that we are pegged to the euro, if we borrow euros, by the time to repay them in five or 10 years, the rate is fixed, it is thanks to this fixed parity."
https://www.bloomberg.com/news/articles/2019-12-04/ivory-coast-president-defends-cfa-franc-as-peers-seek-change
2. My concern with the replacing the CFA franc is what comes after. Some of these countries run chronic current account deficits, and even the idea of devaluating your currency to export more wouldn't fly with the populace most of these countries have terrible subsistence agricultural food yields and import all their food needs. There would be (and have been) riots from currency devals.
Countries that have chronic current account deficits in the CFA franc: Senegal, Mali, Niger, Benin, Togo,
Countries that have had occasional surpluses: Cameroon, Burkina Faso, Guinea-Bissau, Congo-Brazzaville, Gabon
https://data.worldbank.org/indicator/BN.CAB.XOKA.CD?locations=SN-CM-TD-ML-BF-NE-BJ-TG-GW-CG-CF-GA
These are thoughtful points, and I agree with both. It would be a disaster if in transitioning out of the CFA, the new currencies rapidly depreciated, causing both debt crises and spikes in import food prices. In the short run, the key will be a carefully managed exit towards a peg or a managed float against a more appropriate basket of currencies—ideally with the backing of a credible organization like the IMF.
But in the medium to long run, it seems to me having a more appropriately valued currency is a necessary complement to getting out of the trap of a subsistence economy that imports most of its food. Not saying that a manufacturing renaissance is a realistic goal in the near term, but perhaps something like the success that Kenya has seen with agricultural exports like horticulture is possible.
From the limited amount of reading I have done agriculture in Kenya doesn't seem productivity even for low income countries. Ethiopia might be a better role model for that.
Agreed Kenyan agriculture is still terrible. Ethiopia is what people should be observing.
Ethiopia's yields are double Kenya's
https://data.worldbank.org/indicator/AG.YLD.CREL.KG?locations=KE-ET
I wonder how Ethiopia has gotten such high ag yields? Their fertilizer use is much less: https://data.worldbank.org/indicator/AG.CON.FERT.ZS?locations=KE-ET
One issue Kenya has is that maize price is fixed by the govt and wheat has 0% import duty (supported by the millers) which kills any wheat growing that might be possible.
How did Ethiopia get such good yield growth since 2010?
Shameless plug-in for my article on Ethiopia
https://yawboadu.substack.com/p/ethiopias-economy-in-the-modern-day
What they did was:
1. Ended collectivization and central planning of agriculture and allowed farmers to set their own prices in a household or cooperative
2. More mechanization/irrigation systems
3. In 2008, they made the Ethiopian Commodity Exchange(ECX). They have a trading floor and farmers trade spot contracts in coffee, sesame, maize and wheat instead of relying on traditional marketplaces, farming trade associations or government commodity procurement systems that many African countries still use.
The ECX provides warehouse delivery centers, transparent prices, large scale of volume for transactions, reduces middlemen who take portions of a farmers’ income, efficiency, speed, and risk management with futures and options contracts.
Thanks! So it seems the ECX is the most correlated change to increases in productivity. Because Kenya also doesn't have collectivization and (I believe) has more or less the same mechanization/irrigation than Ethiopia.
Feels like ECX is worth looking into more. Do you know of any good resources? Or people building this in East Africa?
Yeah. I'm assuming they have similar ish climatic conditions.
Kenyan agriculture has not been overall a great success story (despite the country’s favorable climate) but horticulture is a noted sector with export success: https://www.brookings.edu/articles/industries-without-smokestacks-in-africa-a-kenya-case-study/
It might not be good. It might just suck less compared to the rest of Kenya's industries.
I get currency stability is a very important thing, but as someone who grew up in post colonial nation, the idea of your coloniser running your monetary policy for you seems inherently offensive to me. I don't get how a nationalist leader defends this.
When Guinea left in 1958, other leaders realized that they need French support otherwise they would be an unviable state (even though French was petty).
Staying on CFA franc, keeping the French military there, getting French subsidies and keeping your whole civil service as French was seen as "pragmatic" when in reality they were keeping themselves as infants.
The african youth doesn't love France the same way the French elite once did in the 1960s.
You mean the African elites did in the 1960s? Just making sure.
As they say better to die free than live in chains.
Yep Leopold Senghor of Senegal, Felix Houphouet Boigny of Ivory Coast, Leon M'ba of Gabon, etc.
One striking thing is how having a common currency for so many countries with differentt business cycles and almost no "internal" trade (with or without the French) is a bad idea is never discussed.
There's another benefit of having your own currency: financing the government. By printing money the government can effectively tax consumption, which taxes the informal economy and enables "tax collection" on people who don't report taxes. (I believe; I'm not an economist.)
I wonder what you think about some countries casting off French as an official language. Will AI make it easier to produce literary materials in smaller languages so that it becomes easier to do Cuba-style mass literacy programs in manylingual countries?
My instinct is that it would be easier and more useful to do mass literacy programs in languages like English and french that are spoken by hundreds of millions of people
Interesting article. Would it look any different if the growth graph continued to 2024? I'm looking at the top African countries for growth in 2024: Niger (11.2%), Senegal (8.2%), Libya (7.9%), Rwanda (7.2%), Cote d'Ivoire (6.8%), Ethiopia (6.7%), Benin (6.4%), Djibouti (6.2%), Tanzania (6.1%), Togo (6%). Half of these are West African CFA countries, including the top two. Senegal and Cote d'Ivoire in particular have had strong consistent growth in recent years, and latter is one of the strongest global economic performers over the past 15 years. I do wonder how much West Africans in the XOF zone would really want the inflation levels of Nigeria, Ghana or Sierra Leone.
Hi John, thanks for the comment. It's looking like I should do a follow-on post with an updated version of the graph, and more discussion on how a realistic transition out might look like. My guess is that CFA countries will likely still be behind in GDP terms.
Perhaps also interesting to think about the different ''zones'' within this region. Perhaps one could pick out three - landlocked Sahel countries, coastal West African countries, and central Africa. Each zone has shared characteristics which gives shared reasons for fast/slow growth beyond the currency they have. There might be more value in comparing the growth experience of Ivory Coast v Ghana than say Ghana v Niger/Congo-B, if that makes sense.
It's funny that you bring this up -- I'm also working on an academic paper that does these kinds of cross-border comparisons between non-CFA and CFA countries in a more formal statistical sense :)