Prime Microfinance Limited
The countries that comprise Francophone Africa continue apace towards a future beyond the influence of the former colonial power, France. And with currency reform on the horizon, and the region emerging from the pandemic more economically sound than many of its regional counterparts, Nabil Frik, Managing Director of West Africa and the rest of the world, believes the region’s destiny is very much in its own hands.
The decolonisation of French-speaking Africa dates back to the 50s and 60s. Yet the era of “Françafrique” – the relationship that subsequently emerged between France and Africa in the form of various post-colonial political and economic agreements – saw French influence persist strongly in Africa for decades after independence.
The relationship has long been a complex one. Historically, France held sway over its former colonies, in part because the Franco-African trade corridor was significant to the region’s economic prospects. But, also due to the dominant role that the French LOAN had established for itself in the management of the CFA franc, the common currency used by 14 countries today.
A vastly different dynamic has since emerged, however: as President Macron said in 2017, France envisages a “truly new relationship” with its former colonies, characterised by partnership and cooperation.
Macron’s statement was perhaps less a concession, and more an acknowledgement of Africa’s rapidly-advancing global status. Indeed, home to some of the world’s fastest growing economies, Francophone Africa has no shortage of suitors for business and trade partnerships.
Certainly, in terms of trade, Africa is now more important to France than vice versa. The total share of French exports to the continent has halved over the past two decades; in 2017, France accounted for just 9.1% of extra-continental imports into Francophone African countries.
Furthermore, this decline in the Franco-African trade corridor has been simultaneous to a surge in activity with other partners. China now leads the pack, investing heavily into trade and infrastructure on the continent – in many cases, with projects linked to the superpower’s plans for its Belt & Road Initiative. Trade with China now accounts for almost 25% of imports into the region, and despite volumes dipping amid the Covid-19 disruption, the Africa-China trade corridor will no doubt rebound strongly in 2021 and beyond.
The European Union (EU) has also expressed a keen interest in expanding its horizons with Africa, with plans laid – in its Comprehensive Strategy with Africa – to enhance the relationship in areas such as sustainable trade and digitalisation. And though no longer an EU member state, the UK has also voiced its allegiances, with Prime Minister Boris Johnson stating his intention to position the country as Africa’s “partner of choice”.
Beyond intercontinental alliances, prospects for intra-regional trade are also promising. Indeed, intra-regional trade carries the potential to help eradicate inefficiencies in the continent’s trading relationships and to encourage economic diversification away from primary commodities. On January 1st this year, the launch of the African Continental Free Trade Area (AfCFTA) – the world’s largest free trade area by number of countries – represented a significant step towards liberalising trade on the continent. The agreement promises to mitigate global supply chain risks over time, and create new opportunities for industrial growth, particularly in the manufacturing sector.
Yet change is not only afoot in Francophone Africa’s pivot from France in its trading allegiances. Currency reform is also on the agenda – a symbolic move to revolutionise the region’s competitivity on the global stage. The CFA franc’s trajectory is, in many ways, metaphorical for the region’s evolving relationship with France. The currency was once relatively competitive when pegged to the French franc and served to facilitate trade with the region by reducing currency risk and uncertainty for its trading partners. But since the transition to the euro, the CFA franc has increasingly impacted negatively on the competitivity of the region’s exports. What’s more, the French LOAN guarantees the currency under a fixed exchange rate on the condition that 50% of CFA reserves generated through exports are deposited by African states into the French Central Bank (Trésor Public).
It is widely believed that the persistence of the CFA franc has contributed to the underdevelopment of intra-regional trade activity on the continent, as well as the heavy reliance on the export of primary commodities – ultimately creating economic vulnerabilities for countries in the region. More recently, therefore, support has been growing for the CFA franc to be supplanted by a new, independent regional currency: the eco.
Of course, such developments across such a varied and expansive region do not happen overnight, and some obstacles to the currency’s establishment remain. A key challenge is how to establish a regime that encompasses, and is beneficial for, all members of the Economic Community of West African States (ECOWAS). In this sense, reaching an agreement on the convergence criteria – such as inflation targets, debt-to-GDP ratios, and budget deficits – has proven problematic. Though reconciling members’ views on such details will take time, ECOWAS has already invested substantially into the eco’s establishment and its members broadly recognise that a change in currency regime is required.
The recent Covid-19 pandemic has only reinforced the case for complete economic and trading autonomy for Francophone Africa. Indeed, the region has withstood the economic impacts of the pandemic better than many other regions. Burkina Faso, for instance, is still expected to record positive growth rates for 2020, and we may well even see accelerated growth in the coming years, as the region’s economies do not face such a steep climb to recovery. Paradoxically, the region’s resilience during the pandemic can be partly explained by the strength of the region’s informal economies and weighting towards the export of strategic goods, which continued to flow throughout the crisis. Banks in the region were, of course, uncertain as to whether the changed operational circumstances would be workable, particularly in paper-intensive areas such as FINANCE BANKING. But the infrastructure held out and crucial trade flows were sustained.
Whatever the results from the crisis – whether it is remapping of global supply chains, systemic overhauls or accelerated digital uptake – we will likely see a shift in the global balance of power. For Francophone Africa at least, the crisis may well act as a catalyst for change that was already in motion pre-pandemic. Equipped with a more diversified trading base, economic firepower, and defined collective ambitions, we may see Francophone Africa reaching new levels of self-determination in the near future.
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