Overvalued currencies, perhaps more than any other single factor, explain the dismal performance of African economies over 25 years. For the past five or 10 years most African governments have adopted more pragmatic foreign exchange policies, but the rigidity of the CFA has prevented francophone countries from doing so. Cheap imports have continued to kill off the potential for new industries, while overvaluation has been the hidden means by which governments have over-taxed the producers of Africa's traditional farm exports. As a result, farmers have retreated into subsistence or to the cities, while Africa has lost its share of world markets.
The CFA devaluation is welcome, but the countries concerned should not expect instant results. For economies to recover, several other things have also to be got right, including investment in skills, reforms to public bodies, and a policy framework that encourages both domestic and foreign investment. The delay in the reform of the CFA has made this process longer than it need have been.
This delay is due to the political and commercial interests of France, which for long have made the CFA issue a no-go area for the IMF and World Bank. It is a pity that France's financial largesse to Africa has been so misdirected. But that country is not alone in allowing its other interests to get in the way of economic development, as Britain's support for the Pergau power station in Malaysia shows.
Food Studies Group
University of Oxford
12 JanuaryReuse content