What can Africa teach the eurozone?

A bank teller gives a customer money in Senegal (Archive 2004)

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As European leaders battle to control the eurozone debt crisis, 14 sub-Saharan African countries could teach them how to maintain a disciplined and stable currency union.

Their single currency system, the CFA franc, keeps inflation low, retains investor confidence and in recent years has enjoyed rates of real economic growth that Europe can only dream about.

It has also weathered severe economic pressure - most member countries depend on price-volatile commodity exports and several are among the poorest on earth.

Parts of the bloc - which encompasses mostly former French colonies in West and Central Africa - have also endured violent political instability.

CFA Zone

CFA notes

West African Economic and Monetary Union (Uemoa)

  • Members: Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, Togo
  • Total population: 99 million
  • Central bank: Dakar, Senegal
  • Projected GDP growth: 2012 - 6.4%; 2013 - 5.7%*

Monetary and Economic Community of Central Africa (Cemac)

  • Members: Cameroon, Central African Republic, Chad, Congo-Brazzaville, Equatorial Guinea, Gabon
  • Total population: 43 million
  • Central bank: Yaounde, Cameroon
  • Projected GDP growth: 2012 - 6%; 2013 - 4%*

* Source: IMF

For several months early last year the banking and international payments system in Ivory Coast was paralysed by financial sanctions, after the incumbent head of state, Laurent Gbagbo refused to accept defeat in the November 2010 presidential election.

Guinea-Bissau and Mali have suffered coups and internal conflict; all the Sahelian members are struggling to recover from the aftermath of a devastating drought.

And yet, the credibility of the CFA franc union remains intact, in both political and economic terms - with projected economic growth this year of 4.6% for the Central African bloc and an impressive 6.4% in West Africa.

The CFA bloc functions with relatively harmonious coherence - and apparently without any need for political integration, to sustain its monetary discipline and financial stability.

Perhaps the strongest message it could give to Europe is the way CFA zone countries shield the rigorous management of the currency union from the influence of national politics and disputes between member states.

Political unity in West and Central Africa is probably weaker than in the eurozone. But the African franc zone governments mostly avoid public argument over regional economic policy.

Of course, just as in Europe, national interests clash in policy arguments - and tussles over power and big regional jobs.

There is rivalry too: While West Africa operates a shared stock market, in Central Africa, Cameroon and Gabon have launched rival exchanges.

Free from scrutiny


  • Countries: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain
  • Total population: 331 million
  • Central bank: Frankfurt, Germany
  • Projected GDP growth: 2012 - -0.3% (contraction); 2013 - 0.7%*

* Source: IMF

But most of the tough wrangling between governments takes place behind closed doors, in discreet negotiations and tightly managed summit meetings.

In their domestic pronouncements, African politicians almost never comment on the single currency or the economic management of fellow member governments.

The existence of the system and the way it functions is just treated as a fact of life.

This is not a luxury open to governments in Europe, where politics is more open, and subject to much more intense media coverage and domestic parliamentary pressure.

Even though most CFA zone governments are elected and nominally democratic, in reality African power still mainly flows from the top.

Presidents and prime ministers take the main economic decisions without much pressure or scrutiny from the public or the press.

It is not like that even for Europe's most powerful government leader.

Chancellor Angela Merkel is not entirely free to take her own decisions about what Germany should do to help save the euro.

Her room for manoeuvre is tightly constrained by her own voters, still haunted by fears of a return to the over-indebted hyper-inflationary 1930s.

No West or Central African leader has to cope with that sort of limit on their freedom of action.

Ivory Coast's Abidjan port in May 2011 after the end of the presidential election crisis Cross-border trade through Ivory Coast was affected in the last decade

This enables CFA zone governments to maintain a steady course, weathering severe stresses, such as the current rebel takeover of northern Mali or the 10 years of conflict and national partition in Ivory Coast - much the largest economy in the West African bloc and a key trade gateway for landlocked countries such as Mali and Burkina Faso.

With Ivorian transport links disrupted, trade patterns simply shifted, to divert trade flows through other outlets, such as Senegal, Ghana and Togo.


But there is more to the CFA zone's stability than this.

BCEAO Bank tower in Dakar, Senegal, March 2008 The CFA franc zone has managed to sustain a sense of common purpose and policy thinking

It has a vital not-so-secret asset: The CFA is pegged to the euro at a fixed rate of CFA 655.957 per euro, guaranteed by the French treasury.

This is an arrangement inherited from the post-colonial era, when most of France's former African colonies opted to stay in a monetary union pegged to the French franc.

And when, almost four decades later, France joined the euro, the CFA's fixed parity was transferred to the new single currency.

So the franc zone's strongest anchor of stability is in fact the euro.

Yet, the paradox is that it is precisely this that differentiates the CFA from the eurozone.

When EU governments fail to agree or misjudge the next step in managing the crisis, they are punished by the markets.

The single currency sinks against the dollar and sterling, while the borrowing costs of the weakest countries soar towards the unaffordable.

By contrast, the franc zone is protected by its fixed exchange rate link to the euro.

Disappointing economic numbers or a budget crisis in a member state cannot spark a plunge in the value of the currency.

If investors' confidence weakens, the external value of the CFA is held firm by that French-guaranteed peg.

This gives francophone African countries a monetary stability that eurozone member states do not enjoy.

But it has not all been smooth sailing.

Strict rules

By the early 1990s the link to a steadily rising French franc left the CFA heavily over-valued.

CFA zone exporters saw their competitiveness eroded, and imports were sucked in, undermining local farmers' ability to supply their own home markets.

Matters came to a head in January 1994 when, in close coordination with the IMF and France, the West and Central African zones staged their only devaluation - a 50% cut in the value of the CFA franc.

This drove up the cost of living for city dwellers consuming imported goods, but revived the competitiveness of local farmers.

Although painful at the time, the devaluation was the springboard for recovery and long term growth; the parity has not been adjusted since.

There have been other challenges, including a mismanagement scandal at the Paris offshoot of the central African central bank.

Money changers in Cameroon The CFA franc is pegged to the euro at a fixed rate of CFA 655.957 per euro

But broadly the system has proved resilient and has gradually reinforced financial integration, for example, through the creation of regional markets in government debt paper.

The fixed rate link also means that CFA francs and euros can be changed freely.

But this shield is not cost-free.

It comes with strict rules on borrowing and depositing counterpart funds. CFA countries are treaty-bound to a set of financial disciplines.

These are much tighter than the rules that have governed eurozone states.

Combined with the strong outside oversight of the IMF, the arrangement leaves franc zone members with much less freedom over economic policy than their eurozone counterparts.

Today in Europe there are suggestions that the euro can only survive if member states adopt a much deeper degree of economic and financial union - particularly in the cross-border regulation of banking.

Bread seller in Abidjan, Ivory Coast Most CFA zone countries are former French colonies

Africa offers an example of what this can entail. The CFA franc blocs already operate regional systems of bank supervision, with regulatory commissions for West and for Central Africa.

They have also taken big steps towards harmonising business law and established a joint appeal court for business cases.

The collation of financial and economic statistics is largely harmonised too.

And these formal arrangements are also underpinned by cultural factors, as all but two of the 14 member states are former French colonies.

A close web of institutional and personal connections links members of the administrative elite across the region, with much common historical background, and shared educational and administrative traditions inherited from France.

Senior officials from different countries often have a common academic training, in France, or shared career experience at the IMF, World Bank or the regional central banks.

These factors help to explain how the CFA franc zone has managed to sustain a sense of common purpose and policy thinking.

Europe, with its varied languages and government administrative traditions, may find it hard to develop such a coherent shared outlook.


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  • rate this

    Comment number 48.

    Isn't the stability of the CFA franc entirely due to France guaranteeing its Euro peg? It sounds as if in return, Paris effectively controls monetary and other elements of economic policy in the CFA zone. Is this the solution proposed for Europe, with Frankfurt in the role of Paris and the PIGS playing the African role? The south trades loss of economic sovereignty for economic stability.

  • rate this

    Comment number 47.

    Dear Paul,
    Is it not anomalous if a servant teaches his master? Please note that the choices available to a servant is, most of the time, very limited, and that the servant often accepts certain harsh realities as part-and-parcel of life.

  • rate this

    Comment number 46.

    I didn't see this in my skim read:

    However: between 1945 and 1958, CFA stood for Colonies françaises d'Afrique ("French colonies of Africa"), I read elsewhere.

    It's always nice to know...

  • rate this

    Comment number 45.

    How is this article news? Sounds more like pc propaganda.Suggesting that corrupt, third world countries are a model is ridiculous.

  • rate this

    Comment number 44.

    The CFA is protected by being pegged to the Euro...That's like strapping yourself to the Titanic to protect yourself from sinking...

  • rate this

    Comment number 43.

    Commenting on grizzler: fact is Remittances from Portuguese diaspora to Angola ( there are no jobs in Portugal) to Portugal now exceeds the entire remittance by ALL Africans living in Portugal to ALL Africa. No Bank in CFA zone ( re prude boy) has ever gone to the their Govt t or Central Bnk begging for help! Northern Rock, anyone?

  • rate this

    Comment number 42.

    Let's put the matter in perspective. When Treaty of Rome was signed in 1958 creating European Common Market, two of the future members of EU had military dictatorships in their own countries. Remember Gen Franco and Sen Salazar? Ghana had 4 changes of Govt via ballot box. When was the last army rule in Greece and Turkey? Was it not in 1981 that Guardia Civil appeared Spanish Parliament ?

  • rate this

    Comment number 41.

    40 AtoDesta
    Ivory Costa has very high unemployment and much inequality, but I bet they have a superb airport.

  • rate this

    Comment number 40.

    One gets the impression some of the contributors never read beyond the headline and jumped straight to offer long-held prejudiced views on Africa. Africa having anything worth teaching Europe? Not in their view.

    I once heard an Irish Credit Union official admit on national radio his amazement when he stepped off the plane in Lusaka. This from someone who thought Zambians needed his help!

  • rate this

    Comment number 39.

    Interesting and informative article on an obscure subject. It was surprising to learn that for whatever reason these African nations are excercising better fiscal discipline than Europe (or the US) in spite of problems that make the EU look like a model of stability. What an amazing gift France left its former colonies by guarunteeing the value of their currency!

  • rate this

    Comment number 38.

    It is very nice to read something positive about Africa.

    I really do wish that all Africans should have a better life.

  • rate this

    Comment number 37.

    I have grown up with the view that nations like Africa, if they are wise and are watching our misuse of the "bartering tool" we call money then they could grow to have a better respect for it. I wish them well and hope they really are the tortoise in the race for an equal growth amongst people, imagination and cohesion. Not least because they have been left out of what we percieve as "reality".

  • rate this

    Comment number 36.

    'The CFA franc is pegged to the euro at a fixed rate of CFA 655.957 per euro'
    CFA 655.957 per Euro? Jeepers..... sounds like the old Italian Lire to me!

  • rate this

    Comment number 35.

    Size is different and policies are different.No votes are needed.Few people are there to question them.

  • rate this

    Comment number 34.

    It's somewhat ridiculous to compare EU to CFA zone. No one dare to question leaders' decision in CFA zone thus decision making & passing regulations are so much easier. But the article is right to point out that EU should have had more strict common financial regulations esp because of differences in economic behavior between the north and south EU countries. http://www.chasingruins.com/

  • rate this

    Comment number 33.

    "The incumbent head of state, Laurent Gbagbo refused to accept defeat in the November 2010 presidential election." I find it deplorable that the BBC continues to support the French government's intervention and interference to depose of Gbagbo and replace him with their favoured, foreign candidate, Ouattara, especially in light of the evidence evincing these actions.

  • rate this

    Comment number 32.

    These African nations might be holding their shared currency together by allowing high levels of poverty. inequality and unemployment, brought about by a lack of democracy - this is infact the startegy the Eurozone is starting to emulate.

  • Comment number 31.

    All this user's posts have been removed.Why?

  • rate this

    Comment number 30.

    Is it 1 April? Surely trying to compare the Eurozone with Sub-Sahara Africa zone is some kind of spoof! Isn't it a good thing that Chancellor Merkal et al are subjected to intense public scrutiny? How would we react if important economic decisions were made behind closed doors and then just announced to an unsuspecting public? I don't quite get this article.

  • rate this

    Comment number 29.

    Are there any bankers there?

    Thought not.


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