Fabric of Reform educator’s kit
The Fabric of
Reform—An IMF Video
What is the CFA franc zone?
The CFA franc zone consists of 14 countries in sub-Saharan Africa, each affiliated with one of
two monetary unions. Benin, Burkina Faso, Côte D’Ivoire, Guinea-Bissau, Mali,
Niger, Senegal, and Togo comprise the West African Economic and Monetary Union, or
WAEMU, founded in 1994 to build on the foundation of the West African Monetary
Union, founded in 1973. The remaining six countries — Cameroon, Central African
Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon — comprise the
Central African Economic and Monetary Union, or CAEMC.
These two unions maintain the same currency, the CFA franc, which stands for
Communauté Financière Africaine (African Financial Community) within
WAEMU and Coopération Financière en Afrique Centrale (Financial
Cooperation in Central Africa) within CAEMC. WAEMU and CAEMC account for 14 percent
of Africa’s population and 12 percent of its gross domestic
All of these countries except Guinea-Bissau and Equatorial Guinea were colonies of France and
maintain French as an official language. Guinea-Bissau was ruled by Portugal, and today its
official language is Portuguese, while Equatorial Guinea was ruled by Spain, and today both
Spanish and French are its official languages.
The three countries featured in the video vary widely in geography, culture, and history.
Côte D’Ivoire and Cameroon, for example, have tropical coastlines with beautiful,
palm-lined beaches and dense, verdant forests. Mali, which is largely desert, is home to the
storied trading city of Tombouctou (Timbuktu) and occupies territory that was once part of the
great empires of Mali, Ghana, and Songhai. Although French is the official language in all three
countries, each boasts linguistic diversity. Nearly 80 percent of Mali’s population, for
example, communicates in Bambara, while many Cameroonians speak English as a first language
(part of the country was once under British rule), or one of 24 African languages.
Why did the CFA franc zone countries devalue their currency?
Goods produced by the CFA franc zone countries were priced out of the world market when the
exchange rate for the CFA franc was artificially high. Partly as a
result, these countries’ economies grew little or not at all during the 1980s and early
1990s. To address this situation, they consulted with one another and with the IMF and France,
after which they made the bold decision to devalue the CFA franc by 50 percent. This meant that
as of January 1994, 100 CFA francs equaled 1 French franc, instead of the previous ratio of 50
CFA francs to 1 French franc. Devaluation aimed to put these
countries back on a path of sustainable growth by helping them regain their competitiveness in
the world market. It encouraged exports at the expense of imports because it enabled CFA franc
zone countries to sell their products for half as much but required them to buy products from
other countries for twice as much. Devaluation was not intended to be a silver bullet, nor did it
turn out to be. One of its immediate side effects is a one-time surge in prices, which can lead to
inflation. If this occurs, individual purchasing power declines, making it difficult for ordinary
citizens to make ends meet. That is why the IMF encourages governments to couple devaluation
with sound macroeconomic and structural adjustment policies. The former includes prudent
fiscal and monetary policies and an appropriate exchange rate regime. The latter includes trade liberalization, elimination of price controls, diversification of agriculture, reduction of
government workforces and spending, and privatization of
state-owned industries. These policies often must be implemented simultaneously or in a
carefully planned sequence, and thus necessitate a very high level of cooperative decisionmaking.
How has reform affected economic activity in the CFA franc zone
The economies of the CFA franc zone countries have grown 5 percent annually since reforms
were implemented. The agricultural sector — where the majority of the people in
Côte D’Ivoire, Cameroon, and Mali are employed — has greatly expanded.
Also, more people are now purchasing locally produced vegetables, livestock, and other
products. Since these countries’ products have become more competitive in world
markets, they have increased their exports and improved trade
balances, in the process revitalizing such industries as logging and textile manufacturing.
Trade within the CFA franc zone has also increased. After an initial surge, inflation has been
brought under control, which among other things is helping the poor and making these countries
more attractive for investment. Click here to view charts of economic
indicators in the CFA franc zone countries, 1990–2000.
What role did the IMF play in the economic recovery of the CFA franc
Prior to devaluation, the IMF outlined what it believed were the policy steps needed to make it
work. Later, it provided technical advice to the CFA franc zone countries on how to supervise
and regulate banks, how to implement tariff and tax reforms, and how to rein in government
spending. The IMF worked to ensure that substantial funds were allocated to health and
education and that social safety nets were in place in these countries. It also provided loans,
helped to mobilize co-financing from bilateral and multilateral institutions, orchestrated debt relief and debt
cancellation by a number of countries, and worked closely with the World Bank to help each
CFA franc zone country design an individual adjustment
program. IMF loans are intended to temporarily relieve balance of
payments problems and support economic reforms. Credits to poor countries are under a
special IMF long-term program, the Enhanced Structural
Adjustment Facility (ESAF), which provides financing at very low interest rates. This loan
program was enhanced and replaced by the Poverty Reduction and Growth Facility in late 1999.
What challenges remain?
In spite of these encouraging results, much remains to be done if the economies of the CFA franc
zone countries are to continue to grow enough to reduce poverty and increase the living standards
of their people. In all of these countries, the role of the government needs to be rethought so that
it focuses on providing essential public services instead of being directly involved in production,
which the private sector often can do more efficiently. These countries also must allocate more
money for infrastructure improvement (e.g., roads, bridges, schools, and utilities) and human
resources programs (e.g., health care, education, and job training). In addition, private enterprise in CFA franc zone countries must be expanded, a
move that requires governments to convince entrepreneurs that new economic policies will be
upheld. Each country also must promote good governance by
tackling corruption and inefficiency and making its civil service and judicial systems more open
and accountable. Finally, all CFA franc zone countries must continue to work together to forge
strong and mutually beneficial economic ties. Their regional integration is a stepping-stone to
their full integration into the global economy.