Interview

CFA Franc is French currency

Prof. Fondo Sikod

 -Prof. Fondo Sikod, Senior Lecturer of Economics, Uni-Yao II, Soa

Prof. Sikod’s unquestionable experience and knowledge of world economics has gained him recognition in the world economic network. But for reasons yet unexplained Cameroon has yet to give intellectual giant the recognition he deserves. Perhaps that was why Summit Magazine’s Kange Williams Wasaloko trailed the Prof. and pleaded with him to share his views with the Cameroonian reading public. These are excerpts of what Prof. said.  

*Finance Ministers of CEMAC states met in Yaounde in April 2016 to discuss the state of their economies. The meeting took place amidst rumours of another devaluation of the CFA franc. How is the CFA franc faring in the global economy?

That is difficult to say. Let me say one thing, that the CFA Franc is a French currency that was created by the French community that was living in Africa and that is why the original appellation of CFA was “Communauté Française en Afrique”. At independence the name was changed to “Communauté Française Africaine”. But this does not change the fact that it is a French currency and not an indigenous currency.

*How founded is the rumour about another devaluation of the CFA franc in the short or long term?

I should first of all say that the money we are using is tied to the Euro through the French treasury. This means that the movement of the CFA franc is not something that we can control. So, if the Euro loses its value, the CFA franc goes down and vice versa. So, it is not at the level of the economies of the CFA Zone to control their money. The 1994 devaluation came because of the same situation. The European currency was very high and so, ours was automatically high and our economies were suffering because if the value of your economy is high, it means that you cannot sell your products in foreign markets. That is what has been happening to us most of the time. If you talk of devaluation, it means that we are beginning to have problems selling what we are producing to the international community. The reason why you will want to devalue your currency is to make your economy more competitive.

*Now there is a major problem. The CFA franc in the West African zone is higher in value than that in Central Africa. Why this parity?

Like I said earlier, this was money created for the French people living overseas and so, at independence it continued that way. The West Africans will use the same currency like the Central African countries but what is ironic now is that the West African CFA appears to be slightly stronger than the Central African CFA because the economies of Francophone West Africa seem to be doing a little better than the economies of the Central African region. That is why you may find these slight difference. But the bottom line is that they were created to be equal; that is, it should be one for one.

*Some critics say the problem of the CFA is that it is backed by a powerful currency like the euro and that the flow of the CFA franc is controlled by the French Treasury. Can you explain this to the ordinary Cameroonian?

Well, the first thing is, if your currency is pegged to another currency it means that if the main currency goes up, your own currency will also go up and vice versa. So when you peg, it shows that you really do not have control over the movement of your currency. This is what has happened to our currency. One of the things that some people have tried to give as reason for this is that convertibility is this way. But if you look at how our economies are faring, you ask the question: how has that helped us? This convertibility has hurt us more than it has helped us and so, our economy is not even better than other economies in Africa.

*Some people say the free flow of goods and people within the continent can help boost African economies. How far is this true?

Once there is a free flow of goods and people, it means that is should be very easy to move goods from surplus areas to deficit areas. That will encourage productivity and this shall also encourage the economy to move forward.

*Some African countries like Nigeria, Ghana and South Africa have their own currencies. Is it not possible for a country like Cameroon to float its own currency?

Yes, it is possible because having your own currency is an aspect of sovereignty and if you do not have this it means there is an aspect of your sovereignty that is missing. So, yes, Cameroon can have its own currency.

*What is the difficulty is pushing Cameroon to have its own currency like Nigeria, Ghana and South Africa.

                Well, to a certain degree, there’s a political aspect of it but most importantly is having the discipline to manage the money when you create it. Look at Zimbabwe for example that used to have a strong currency; today the Zimbabwean currency is almost worthless. So, if you don’t have discipline on how you manage the money, it will have no value and it means that the authorities can just ask the Central Bank to print money and put in circulation and this money will not have any value.

*Sometimes ago, you said it is better for the region or sub-region to have its own currency than for a country to have a separate currency. How do you explain this?

                Well, the reason why it can be better if a region shares a single currency is because many countries are involved and this means that if one country is not disciplined enough she can be checked by the other countries in the sub-region that are more disciplined. So, I think a regional currency will make more sense.

*Late Muammar Ghadaffi had made a proposal for Africa to have its own currency and its own continental Bank. If Africa had a single currency like the euro, would that render the continent’s economy more competitive vis-à-vis the European and American economies?

The idea of an African currency is really to encourage the free flow of goods and services which as I said earlier will help the economies to move forward quickly especially given the fact that Inter-African trade is extremely small and limited: Our trade is mostly with Europe, America and increasingly with China. But trade within Africa is very limited. So if we have a single currency, it is going to help improve inter-African trade.

*Now some economies are talking about an African Monetary Fund. How will an African Monetary Fund for example help African Countries?

Well, that is something interesting because there is the African Development Bank which is already active. It is true that this bank targets mostly development and if there is an African Monetary Bank, it will probably go beyond that. But I think the multiplicity of financial institutions may not necessarily help. Do not forget that right now there is the BRICS which is faced with that kind of situation. but we are still waiting to see how that will evolve and how it is going to affect the economies of the countries involved. Very often, the world’s economy is determined by the prices of crude oil.

*Africa is producing raw materials. Why can Africa not also determine the world’s economy by giving a higher value for the raw materials which are used by most European economies?

Having these resources is one thing, being able to transform them is a more important thing. This inability of African countries to process the raw materials they have is a major handicap. However, if the raw materials are left to lie on the floor, they are of no value. It is only when they are taken off the ground and transformed into finished goods that they have real value. Our present level of development does not guarantee us the capabilities to exploit or transform these natural resources. We remain dependent on those who are able to process them.

*Cameroon recently signed the Voluntary Partnership Agreement Accords VPAs with the EU. We are told that as soon as the VPAs go operational goods from the EU will start entering Cameroon duty-free. Will this not adversely affect our economy that is already less competitive vis-à-vis that of the EU?

Actually, the VPAs were pushed by the World Trade Organization which is looking at improved trade relationships between the EU and Africa. The VPAs are coming to supplant the African Caribbean Pacific ACP trade relationships with Europe that has been going on for many years. As a matter of fact, the first ACP convention was signed in Yaounde and the latter ones signed in Togo. What is happening now is that Europe is simply saying that over the years African economies are supposed to have grown and become competitive, instead of continuing with the former child-father relationship with the EU. They are urging us to open up our markets and economies for European industries while European industries also open up their markets for our own goods. This is what is being promoted nowadays. The resistance on our part is simply because we are saying that we do not have the capabilities to compete with these European companies because while in theory it is a good idea, in practice we are not at parity to be able to compete. The fear is that if we allow the VPAs to operate fully, our economies would be drowned because we will not be able to compete fairly.

*Cameroon is blessed with many rivers, seaports, mountains, cocoa, coffee, plantain, vegetables and crude oil and all types of precious minerals. We have virtually everything you can think of, yet our economies cannot bounce up. What do you think is the problem with the Cameroon economy that cannot improve the lives of citizens?

Yes, Cameroon has all and more of what you just mentioned. But Cameroon has not organized itself to be able to use these resources in order to move its economy forward. Until Cameroon organizes itself and uses these resources, it will remain poor. However, with the talk of vision 2035, it is hoped that something will be done to jump-start the economy and organize it to attain that vision of an emerging economy.

*Before the vision 2035 there was the policy of “Health for all by the year 2000”. But we saw the year 2000 with our health care system even worse than it was when the policy was propounded. With the pace at which the economy is moving, do you see us emerging by 2035?

Well, I do not know. But it depends on what we are doing right now. The one thing we are doing right now that is probably going to help a great deal is in the energy sector. I think there is the potential for us to become energy self-sufficient shortly and we also hope that we will eventually become food self-sufficient. If this happens we may eventually be moving towards that direction. But we need to organize ourselves much better than we are doing right now.

*Cameroonian Banks are credited with surplus liquidity yet most of these banks do not give out loans to people in need. Because of this money does not circulate within the society. What are the negative economic consequences of banks hoarding so much liquidity?

Yes it is an abnormal thing for banks to have excess liquidity because a bank having excess liquidity is the same as a country having surplus resources and still not doing very well. Commercial banks are supposed to finance the economy but I think they have the excess liquidity simply because of the structure of our economy. Our economy is mostly informal and when an economy is mostly informal, it is difficult for the commercial banks to give loans to economic operators and also the operators are so small that the cost of transactions may be too high for the banks and so the banks prefer to keep their money and give it out only to big companies. Unfortunately, the big companies are not that many either. But having said that, the authorities need to organize the economy so that there is more financial inclusion because it is ironic that there is liquidity in the banks and most operators are excluded from the financial sector which makes their businesses not really improve and go forward. So, we hope that the economic system can be better organized to reduce this excess liquidity in the commercial banks.