France Benefits at the expense of the African Franc Zone

Brian Sturgess - July 2013

Speed Read
  • The member countries of the African Financial Community, a currency union with a fixed exchange rate pegged to the euro, grew at a slower rate than the rest of sub-Saharan Africa over the period 2000-12.
  • The combination of an overvalued convertible currency, corruption, macroeconomic uncertainty and the free movement of resources across most of Francophone Africa encourages serious capital flight.
  • A recent estimate places aggregate net capital flight out of the African currency union during the period 1970 to 2010 at around US$83.5 billion,117% of combined GDP.
  • Capital flight of this order will have seriously reduced domestic investment and depressed economic growth.

A Split Continent

Living standards among the fifteen [1] African countries in the mainly francophone [2] CFA (Communauté Financière Africaine) currency union have grown more slowly than in the rest of Sub-Saharan Africa (SSA) since the Millenium. Between 2000-12, real GDP in the CFA zone rose by an annual average of 4.1% compared to an average rise of 5.1% across a more diverse group of SSA countries.[3] The cumulative impact of this difference in growth on indexed real GDP in these two parts of  Africa is shown in Chart 1.



The CFA Zone

CFA (Communauté Financière Africaine) members use a common currency, the CFA franc, whose value is pegged to the euro at a fixed rate of €1=  655.957 CFA. The value and convertibility of the CFA is guaranteed by the French Treasury,[4] not by the European Central Bank. The CFA is split into two zones : the West African Central Franc Union (UEMOA) and the Central African Franc Community (CEMAC), which are theoretically separate, but the two currencies trade at parity.

The CFA franc has been devalued twice in 1948 and in 1994, but there is some evidence that the currency remains overvalued and there is speculation that it may face another downward adjustment in its rate of exchange with the euro. [5] Not only is this causing uncertainty, but the overvalued exchange rate harms the international competitiveness of the CFA member countries. Unable to control domestic monetary conditions, the inflexibility of the current arrangement means that these countries are also more susceptible to external shocks. However, one of the most harmful economic consequences of this monetary arrangement between France and its former colonies is that it encourages the export of capital out of the region.

Capital flight data

Capital flight occurs through both public and private channels. The loss of capital from the public sector is a function of corrruption and theft while private sector capital flight arises because of macroeconomic uncertainty, unstable instititutions, a poorly developed domestic financial system and the attraction of higher returns outside the country. All of these conditions exist to differing extents across Africa, but capital flight across the CFA franc zones is facilitated by the CFA’s fixed exchange rate and convertibility with the euro and the legal free movement of funds between member countries and the European Union. [6]

Capital flight can be estimated by the extent to to which a country is a net exporter or importer of capital taking into account normal and abnormal flows. A recent study by Ndiaye (2012), published by the African Development Bank and based on adjusted data from the World Bank and Morgan Guaranty, estimates that capital flight across the CFA currency union over the period 1970-2010 has been massive at around US$83.5 billion, or 117.4% of aggregate GDP.[7] The study found that ten of the CFA countries analysed experienced positive capital flight, while only five all UEMOA members,[8] benefited from net capital injections into their economies over the period. In absolute value, netting out the five capital importers, four countries accounted for the bulk of total flight over the period: the Ivory Coast (US$40.9 billion), Gabon (US$22.8 billion), the Congo Republic (US$20.1 billion) and Cameroon (US$11.0 billion).  For poor capital starved economies the size of these flows are shocking, but as Chart 2 shows the potential economic significance of capital loss can also be assessed in relation to a country’s total income. In Guinea Bissau, for example, a country noted for political instability[9] capital flight over the period totalled 441% of GDP, while in the Congo and Gabon, whose economies are dominated by oil, capital flight was 392% and 363% of GDP respectively.  



Capital Flight and Growth

Capital flight at these levels in poor countries has a number of potentially harmful effects including slower growth and persistent balance of payments deficits. [10] A statistical analysis by Nidaye (2012) of the estimated capital flight data found that there was a negative relationship between the loss of capital and GDP growth across the CFA countries. The money leaving the CFA zone reduces the resources that could have been invested to support domestic income expansion. The study referred to above estimates that the level of flight represents an average of around 5.1x the value of investment expenditure in this group of countries. In the case of the Ivory Coast, however, capital leaving the country was around 21x investment spending. In contrast, the rate of domestic investment across the franc union was feeble and volatile.

Reform of the CFA currency union would be complex given the embedded nature of the control that France maintains over the monetary policies of its former colonies.  Indeed Mabaye (2012) has called the franc zone ‘an appendage of the French economy’ arguing that while the French state benefits from the African reserves it holds, the private sector has gained from the preferential access companies gain in these markets. It would also be politically difficult to change current arrangements since local African elites, if not the bulk of citizens, benefit from the ability to transfer resources freely into Europe without capital controls. But the economic evidence demonstrates that reform is urgent in order for francophone Africa to catch up with the growth in income and the investment returns that attract so much foreign money across the rest of the continent.




Ariyoshi, A., Habermeier, K., Laurens, B., tker-Robe, I., Canales-Kriljenko, J.I., and Kirilenko, A. (2000), “Capital Controls: Country Experiences With Their use and Liberalization”. Occasional Paper 190, IMF.

Bakare, A.S. (2011) “The Determinants and Roles of Capital Flight in the Growth Process of the Nigerian Economy: Vector Autoregressive Model Approach,” British Journal of Management and Economics 1 (2): 100-113.

Gnansounou, S.U. and Verdier-Chouchane, A. (2012) “Mésalignement du taux de change effectif réel : Quand faudra-t-il de nouveau dévaluer le franc CFA ?” Bureau de L’Économiste en Chef, African Development Bank, Working Paper No. 166, December.

Mabaye, S. (2012) “Decolonizing the Franc Zone,” Project Syndicate 5 April:

Mabaye, S. (2013) “Africa’s French Roadblock, Project Syndicate May 21:

Ndiaye, A.S. (2012) “Une croissance économique forte et durable est-elle possible dans une context de fuite massive des capitaux en zone franc?” Paper presented at African Economic Conference, 2012, Kigali, Rwanda, 30 October-2 November.

[1] These are Benin, Burkina-Faso, Cameroon, Central African Republic, Chad, Equatorial-Guinea, Guinea-Bissau, Ivory Coast, Niger, Mali, Mauretania, Republic of Congo, Senegal and Togo. The Comoros Islands are also part of the CAF. Under a separate monetary cooperation agreement with France the Comorian franc has been pegged to the French franc and then the euro with convertibility guaranteed by France. In January 1999, the Comorian franc was pegged at 491.97 Comorian francs to €1.

[2] Equatorial Guinea is a former Spanish colony while Guinea-Bissau was a possession of Portugal.

[3] The list of 39 SSA countries excludes the North African countries of Algeria, Egypt, Morocco, Sudan and Tunisia. Somalia, Eritrea and South Sudan are excluded on account of a lack of data.

[4] Each member central bank places a high proportion of its foreign reserves into an operations account with the French Treasury which charges interest on negative balances but pays interest on positive amounts.  Currently, it has been estimated by Mbaye (2013) that the current sum held is US$17.7 billion.

[5] See Gnansounou and Verdier-Chouchane (2012).

[6] See Ariyoshi et al (2000).

[7] Ndiaye (2012) produced two estimates by adjusting World Bank and Morgan Guaranty data. The figures in the text are the average of them.

[8] These are Benin, the Comoros Islands, Mali, Niger and Senegal.

[9] No elected president in Guinea-Bissau has successfully served a full five-year term since gaining independence in 1974.

[10] There is a large amount of evidence showing that capital flight has harmful economic effects, but recent work carried out on Nigeria by Bakare (2011) found a significant negative impact of capital flight on economic growth.