| GATE - 4/94 - West and Central Africa - will the crisis boost the AT approach? |
On January 12, 1994, the CFA Franc - the currency of the western and central African countries of the CFA Franc zone - was devalued by 50%. Although this step was in the financial-policy offing for some ten years, it came as a huge surprise to the population. We publish an analysis to give readers some background information and two comments on the impacts of devaluation.
The CFA Franc zone: A difficult reversal
Relative price levels in the African countries of the Franc zone and in France have changed significantly with the passage of years. Despite a stringent policy aimed at restricting the money in circulation, African prices rose faster than those in France. Between 1960 and 1980, it was generally considered normal for something priced at FF 1 in France to cost CFAF 100 (i.e. FF 2) in the Franc zone; in other words, for prices in the latter to be twice as high.
One of the main consequences of this overvaluation of the CFA Franc, which the Franco-African monetary authorities were unwilling to tackle, was the excessive rise in the cost of factors of production in the Franc zone countries, in relation to other, comparable countries. This held back productive investments and facilitated the expansion of imports and enabled trading houses to operate on large profit margins.
As a French businessman from Senegal acknowledged to the AFP Daily Bulletin on 17 January (shortly after the devaluation), " for 3 0 years we had a profit margin that was twice what would have been possible in France".
From a purely African point of view, the increased tax and customs revenue generated by imports did little to help the few local economic sectors capable of import substitution, instead, it merely boosted the unproductive spending of bloated state and parastatal bodies. It also gave an enormous advantage to city dwellers, the main consume of imported products, to the detriment of people in the countryside, many of whom were thus indirectly induced to move to the urban areas.
With this combination of economic euphoria and what was essentially political thoughtlessness, the decline began to set in at the end of the 1970s. The crisis of the 1980s saw the basic indicators of the African economy undergoing a fundamental change. This crisis, regarded by some as unparalleled, was characterized by external events which administereted a triple blow to the system. The three elements of this were a deterioration in the terms of trade (a 20%-50% drop in the prices of cotton, cocoa and coffee), a decline in the value of the dollar (the leading exchange currency outside the Franc zone) which amplified the reduction in export revenue, and competition from countries such as Ghana and Nigeria, which were in a position to operate exchange rate policies to suit their economic ambitions, rather as the Asians could. There was also a revelation, within the African countries, about the profound structural weakness of their economies. Hitherto this reality had been largely ignored, masked by the considerable amount of aid from Europe in the good year and by the unexpected boost to resources resulting from the oil price increases of 1973-75. (from: "the courier", no. 147, September/October 1994, p.11)
Cameroon: Cooperate to overcome the crisis
Never has an event in the economic history of francophone Africa hit the population so hard.
This can be explained by the fact that Ã priori everyone is impotent when faced with decisions and measures taken and canceled at random and a certain indignation arises vis-Ã -vis something which many people consider as being fate. Uncertainty becomes widespread and everyone asks what can he done to safeguard the population. The rise in the cost of living was just as rapid as it was unexpected by the majority of the population.
But it would be a covetous sin to limit our analysis of the impacts of the devaluation of the CFA Franc to the negative consequences; indeed, devaluation also offers a new opportunity to re-launch the economy and the specific situation reigning in the countries concerned.
While all people experience devaluation as a serious crisis, it does simultaneously provide an overwhelming impetus and encouragement to our imagination and creativity in inverting the ways, means and lifestyles needed for survival and development. We are assisting at an unprecedented awakening of popular awareness which is being translated into an enormous will on the part of men and women to take their future destiny into their own hands.
The dynamic of groups and associations which has been brewing for so many years is becoming stronger and wider. The motto "Together we're strong" has never been more topical all over Africa.
Faced with this new situation non-governmental organisations (NGOs) have a real opportunity to prove the credibility of their actions by accompanying and supporting people's efforts to help themselves.
As money has lost 50% of its value, focus has turned to locally produced foods rather than imported one. The processing and marketing of local food products are gaining in Importance in activities to create and support micro-enterprises. Technologies are also being employed in order to reduce the effects of the crisis.
But these activities are also hit by rising costs, leaving the population skeptical as to whether the investments made will give value for money in return. But we can't let this opportunity which devaluation has brought us go by, as it forces the whole of society to take a good look at itself, to dig deep into its own imagination and creativity and develop new resources or expand those only slightly exploited to date.
NGOs nowadays giving priority to research, diffusion and expansion of technologies to promote small enterprises must realise that such activities must be based on a professional footing, which, unfortunately, most operators in this field do not possess. In order to strengthen their capacity to help support such initiatives generated by hope, NGOs need both appropriate information and sufficient financial resources. The NGOs too are suffering from the devaluation of the CFA Franc, the responsibility for which lies at a far higher level.
All actors must cooperate to find a solution, each playing its specific role: the state, donors, NGOs, the population Devaluation could, in fact, give birth to something good and sustainable but on condition that the state, individuals and all groupings and associations do not just accept the challenge it offers, but also transform i it into practical, positive action.
Kornio is Secretary General of APICA (Association pour la Promotion des Initiatives Communitaires Africaines)
Depuis dix ans environ, il faut s'attendre Ã la dÃ©valuation du F CFA car, depuis le dÃ©but des annÃ©es 80, une crise Ã©conomique sÃ©vit dans les pays africains. Cette dÃ©valuation, intervenue le 12 janvier 1994, a cependant Ã©tÃ© un choc pour la population. Des reprÃ©sentants d'organisations partenaires du GATE au Cameroun (APICA) et au SÃ©nÃ©gal (F.I.D.) commentent les consÃ©quences de cette derniÃ¨re.
Desde trace unos diez aÃ±os habla que contar con la depreciaciÃ³n del franco CFA, ya que desde comienzos de los aÃ±os ochenta se cernÃa una crisis econÃ³mica sobre los paises africanos. No obstante, la devaluaciÃ³n de la moneda efectuada el 12 de enero de 1994 supuso un schok para la poblaciÃ³n. Representantes de las organizaciones que cooperan con GATE en CamerÃºn (APICA) y Senegal (F.I.D.) comentan las consecuencias.
Senegal: Searching for a new path
The decalution of the CFA Franc vis-Ã -vis the French Franc on 12th of January 1994 came both as a surprise and a shock for Senegal.
Although it created panic and crisis, it can be said that the people of Senegal arc now dealing more wisely with the crisis. It was a surprise and a shock because so many Senegalese just did not expect it; because the supreme authorities in the country and in France had promised that it would never take place.
The panic resulted from the enormous jump in prices and the fact that basic necessities disappeared from the market.
Devaluation also brought a major social crisis when numerous strikes paralysed the country which had to face moments of extreme social tension and insecurity.
Indeed, most Senegalese were hardly able to make ends meet even before devaluation. No matter whether people lived in rural or urban areas they all experienced difficulty in assuring a day's meals.
Households' purchasing power suddenly dropped. The cost of transport, medicines, schooling for children have suddenly doubled. The worry of having to provide for the upkeep of a family is a heavy burden which Senegalese people have to bear.
Despite this rather gloomy context, optimists see devaluation as an opportunity to re-launch the country's agriculture and exports which has to be grasped with both hands. But how can the agricultural sector, which employs more than 85% of the population, be significantly re-launched if the immediate effect of this devaluation is a 30 to 50% rise in the price of agricultural inputs and materials.
One thing is sure: devaluation has created three social categories: people who nostalgically cry over the past, the winners and the losers.
The nostalgic people are those who prefer well-stocked supermarket stores instead of locally produced goods.
The winners are those traders who unscrupulously increased the price of basic staple foods in a vertiginous way and before the very eyes of the public powers, as soon as they heard of the changed parity between the CFA Franc and the French Franc.
The losers are those social strata consisting of the poorest people, i.e. peasants, fishers, rural craftsmen and stock raisers. These people make up the majority of the country's population and are facing enormous difficulty nowadays in assuring their daily survival.
Devaluation did have some positive effects though, the albeit modest rise in the price of some local produce such as rice paddy, millet, peanuts and cotton. The Senegalese consumers are relying more and more on locally produced products.
It cannot be denied that devaluation has given government an arduous task, and made life far more difficult to support.
The only alternative open to Senegalese people is to adapt and begin to imagine new ways of surviving. Only the future will decide between optimists and pessimists on the real effects of the devaluation of the CFA Franc. For the meantime we just have to wait and have a cup of tea, if there is any there.
Diallo is Director of the F.I.D. (Fondation Internationale pour le DÃ©veloppement)