By Professor Amath NDIAYE, economist, FASEG-UCAD, Dakar.
The CFA Franc is regularly accused of penalizing the competitiveness of African economies due to its peg to the Euro. According to this thesis, countries with national currencies could improve their trade balances by allowing their currencies to depreciate. But do economic facts confirm this assertion? To answer this question, we compared three groups of countries: the West African Economic and Monetary Union (WAEMU), the Central African Economic and Monetary Community (CEMAC), and the rest of Africa. The analysis focuses on the evolution of nominal exchange rates between 2000 and 2024 and on trade performance, based on comparable data available for 2015–2024.
Competitiveness is not limited to exchange rates
Competitiveness is a broad concept that encompasses two dimensions: price competitiveness, related to exchange rates, wages, and production costs, and structural competitiveness, which depends on productivity, infrastructure, energy, innovation, and product quality. Focusing exclusively on the exchange rate while neglecting these other determinants can lead to erroneous conclusions. A depreciated currency does not automatically make an economy competitive, just as a stable currency does not necessarily constitute a handicap. The evolution of the trade balance, which measures the difference between exports and imports, provides a useful indicator of a country’s external performance.
The Paradox of CFA Countries
In a sample of 52 African countries with usable data, the trade balances relative to GDP show the following results for 2015–2024:
| Average Trade Balance / GDP | |
|---|---|
| CEMAC | +5.8% |
| WAEMU | −8.8% |
| Rest of Africa | −10.9% |
Source: calculations based on available WDI data. Simple averages of national observations for 2015–2024.
These figures reveal an apparent paradox: countries using the CFA Franc, despite their fixed exchange rate regime, show, on average, more favorable trade balances than other African countries. The surpluses in CEMAC are largely explained by oil and other raw material exports. As for WAEMU, its trade deficit remains lower, on average, than that of the rest of Africa.
These results do not prove that the peg improves trade performance. However, they challenge the idea that the stability of the CFA Franc necessarily equates to non-competitiveness.
Depreciated Currencies Without Systematic Trade Improvement
The evolution of nominal exchange rates between 2000 and 2024 is particularly instructive. In 2000, one dollar was worth about 710 CFA Francs, compared to 606 CFA Francs in 2024. Over the same period, the dollar rose from 102 to 1,479 Nigerian Naira, and from 0.54 to 14.18 Ghanaian Cedis, after adjusting for Ghana’s 2007 monetary reform. In twenty-four years, the Naira has thus lost 93.10% of its value against the dollar, and the Cedi 96.19%. In contrast, the CFA Franc has appreciated by 17.16% against the US dollar. Yet, these significant depreciations have not systematically eliminated trade deficits, while the CFA Franc appreciated against the dollar between these two dates.
For the period 2000–2024, or 24 years, the depreciation rates of the Nigerian Naira, Ghanaian Cedi, and CFA Franc against the US dollar are as follows, based on the indicated rates.
| Currency | 2000 (for 1 USD) | 2024 (for 1 USD) | Change in Exchange Rate | Change in Currency Value |
|---|---|---|---|---|
| Nigerian Naira | 102 | 1,479 | +1,350% | −93.10% |
| Ghanaian Cedi | 0.54 | 14.18 | +2,525.93% | −96.19% |
| CFA Franc | 710 | 606 | −14.65% | +17.16% |
However, these depreciations (summarized in the table above) have not systematically eliminated trade deficits. The explanation is simple: when an economy heavily depends on imports of fuel, equipment, and intermediate goods, depreciation increases production costs and fuels inflation. The initial advantage provided to exporters can then be partially or totally offset.
Moreover, the stability of the CFA Franc against the Euro does not exclude fluctuations in its value against other currencies. The real effective exchange rate, which takes into account inflation differences and trading partners, is a more relevant indicator of price competitiveness than the nominal parity alone.
True Competitiveness is Built
The peg to the Euro can promote monetary stability, limit certain exchange rate risks, and facilitate trade and investment. It also comes with constraints, especially when the Euro appreciates significantly and penalizes exporters. However, trade performance also depends on structural factors: production diversification, processing of raw materials, quality of infrastructure, energy availability, and cost control. A devaluation can temporarily support exports, provided that companies can increase their production and that inflation does not erase the benefits.
Our analysis thus reveals a paradox: CFA countries, characterized by greater monetary stability, show, on average, more favorable trade balances than those of the rest of Africa, where several currencies have experienced significant depreciations.
This observation does not demonstrate that the peg is the cause of these better performances. However, it invites a reconsideration of the assertion that the CFA Franc is inherently a source of non-competitiveness. True competitiveness is not decreed by devaluation. It is built through productivity, cost control, product quality, and economic diversification.
Methodological Note
The nominal exchange rates are examined over 2000–2024. The averages of the trade balances presented cover 2015–2024, a period for which comparable observations have been consolidated.
The initial sample includes 54 countries, of which 52 have usable data in this comparison.
The results are descriptive and do not demonstrate a causal relationship between the peg and trade performance.
CEMAC: Cameroon, Congo, Gabon, Equatorial Guinea, Central African Republic, and Chad.
WAEMU: Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.
About Professor Amath NDiaye / FASEG-UCAD
Prof. Amath Ndiaye is a Senegalese economist with a Doctorate in Economic Sciences from Cheikh Anta Diop University of Dakar (2001) and a PhD in Development Economics from the University of Grenoble, France (1987). Since 1987, he has been teaching at the Faculty of Economic Sciences and Management at Cheikh Anta Diop University of Dakar. A recognized expert, he has collaborated with prestigious institutions such as the African Development Bank, the World Bank, and the IMF, specializing in exchange rates, economic growth, and institutional development. He has been an expert member of the steering committee of the African Union Commission for the Creation of the African Central Bank. Prof. Ndiaye is the author of numerous influential publications, particularly on exchange rate regimes and economic growth in West Africa. Trilingual, he is fluent in Wolof, French, and English.
