The CFA Franc System *
Author:
International Monetary Fund. Research Dept.
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Publication Date:
01 Jan 1963
eISBN:
9781451968934
Language:
English
Keywords:
SP; pound; trader; interest rate; yield; exchange rate; area need; consumer goods; fixed price; financial gain; price difference; Agricultural commodities; Imports; Tariffs; Oil; intervention price
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IN THE PAST TWO YEARS, all the countries of former French West Africa1 and of former French Equatorial Africa,2 and also Cameroon, the Malagasy Republic (Madagascar), and Togo, have become members of the International Monetary Fund. Except for Guinea, which established its own central bank and national currency on March 1, 1960, and Mali, which did the same on July 1, 1962, the currencies circulating in all these countries, as well as those circulating in the Comoro Islands, the Island of Réunion, and the islands of St. Pierre and Miquelon, bear the name CFA franc. (The initials formerly stood for Colonies Françaises d’Afrique and now stand for Communauté Financière Africaine.) In these various countries and territories, however, CFA francs are issued by six different central banks or institutes of issue, and the one issued by each of these is legal tender only in the area in which it is issued. It is possible therefore to distinguish six different CFA francs:

Abstract

IN THE PAST TWO YEARS, all the countries of former French West Africa1 and of former French Equatorial Africa,2 and also Cameroon, the Malagasy Republic (Madagascar), and Togo, have become members of the International Monetary Fund. Except for Guinea, which established its own central bank and national currency on March 1, 1960, and Mali, which did the same on July 1, 1962, the currencies circulating in all these countries, as well as those circulating in the Comoro Islands, the Island of Réunion, and the islands of St. Pierre and Miquelon, bear the name CFA franc. (The initials formerly stood for Colonies Françaises d’Afrique and now stand for Communauté Financière Africaine.) In these various countries and territories, however, CFA francs are issued by six different central banks or institutes of issue, and the one issued by each of these is legal tender only in the area in which it is issued. It is possible therefore to distinguish six different CFA francs:

IN THE PAST TWO YEARS, all the countries of former French West Africa1 and of former French Equatorial Africa,2 and also Cameroon, the Malagasy Republic (Madagascar), and Togo, have become members of the International Monetary Fund. Except for Guinea, which established its own central bank and national currency on March 1, 1960, and Mali, which did the same on July 1, 1962, the currencies circulating in all these countries, as well as those circulating in the Comoro Islands, the Island of Réunion, and the islands of St. Pierre and Miquelon, bear the name CFA franc. (The initials formerly stood for Colonies Françaises d’Afrique and now stand for Communauté Financière Africaine.) In these various countries and territories, however, CFA francs are issued by six different central banks or institutes of issue, and the one issued by each of these is legal tender only in the area in which it is issued. It is possible therefore to distinguish six different CFA francs:

1. That issued by the Banque Centrale des Etats de l’Afrique de l’Ouest circulates in Dahomey, Ivory Coast, Mauritania, Niger, Senegal, Togo, and Upper Volta. It also circulated in Mali until July 1, 1962, when the Mali Government began issuing its own currency.

2. That issued by the Banque Centrale des Etats de l’Afrique Equatoriale et du Cameroun circulates in Cameroon, the Central African Republic, Chad, Congo (Brazzaville), and Gabon.

3. That issued by the Institut d’Emission Malgache3 circulates in Madagascar.

4. That issued by the Banque de Madagascar et des Comores circulates in the Comoro Islands.

5. That issued by the Institut d’Emission des Départements d’Outre-Mer circulates in the Island of Réunion.

6. That issued by the Caisse Centrale de Coopération Economique circulates in the islands of St. Pierre and Miquelon.

The present study is concerned only with the CFA franc issued by the three African central banks. In the subsequent sections, for the sake of brevity, the term “CFA countries” will be used to include the following:

1. BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest) countries: Dahomey, Ivory Coast, Mauritania, Niger, Senegal, Togo, and Upper Volta.4

2. BCEAEC (Banque Centrale des Etats de l’Afrique Equatoriale et du Cameroun) countries: Cameroon, the Central African Republic, Chad, Congo (Brazzaville), and Gabon.

3. Madagascar.

Money and Banking

Central Banking

All CFA countries belong to one of three monetary systems. The countries of former French West Africa (excluding Guinea and Mali) and Togo share one common CFA franc issued by a common central bank—Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO). The four countries of former French Equatorial Africa and Cameroon also share a common CFA franc issued by a common central bank—Banque Centrale des Etats de l’Afrique Equatoriale et du Cameroun (BCEAEC). In Madagascar, a new Institut d’Emission Malgache (IEM) was established on April 1, 1962 to take over the central banking functions hitherto exercised by the Banque de Madagascar et des Comores, which was created in 1925 as the bank of issue for Madagascar and the Comoro Islands. However, until December 31, 1963, the Banque de Madagascar et des Comores, as an agent of IEM, will continue to be responsible for the actual management of the note issue. The relationship between the French franc and the CFA franc is F 1 = CFAF 50, thus giving a rate in relation to the U.S. dollar of CFAF 246.853 = $1.00.

Although their statutes and functions differ somewhat, the three central banks have various common features. The similarities of their operations have been increased by the new statutes of the BCEAO, effective from November 1, 1962, and by the provisions contained in the statutes of the newly established IEM. The common features of the three central banks (apart from their function of issuing currency) may be summarized as follows:

1. The central banks hold the external reserves of all the participating countries. These reserves are held exclusively in the form of French francs. Payments and receipts in foreign currency of each central bank are settled through an account (the so-called Operations Account) with the French Treasury. Further, under an agreement with each central bank, France guarantees unlimited conversion of CFA francs into French francs. This guarantee is made effective by the French Treasury providing automatic overdraft facilities to the central bank should the latter’s Operations Account show a negative balance.

2. The management of the IEM is vested in a Board of Directors. The management of each of the other two central banks (BCEAO and BCEAEC) is divided between a central Board of Directors and national Monetary Committees (one in each participating country) consisting of both French and African representatives. The central Board of Directors decides on over-all monetary policy, which is implemented by the Monetary Committees at the national level.

3. All three central banks are authorized to extend short-term and medium-term credit to the private sector. This takes the form of rediscounting commercial bills presented by commercial banks and certain private enterprises. In general, short-term credit is granted for periods of six to nine months only, and medium-term credit for periods of not more than five years.

4. Until recently, there was no provision for extending direct central bank credit to the governments, mainly because these governments met their short-term financial requirements by obtaining advances from the French Treasury. However, under the new statutes of the BCEAO and of the IEM, provision is made for central bank credit to the governments, either by direct advances or by rediscounts of Treasury bills held by commercial banks, up to a limit of 10 per cent of the fiscal revenues of each government.

5. Each central bank exercises monetary control within its respective territory—primarily by fixing the discount and credit ceilings for each country and, within each country, for each bank and enterprise. In addition, the central banks are empowered to vary discount rates. Under its new statutes, the BCEAO is empowered to prescribe liquidity ratios for commercial banks and to require obligatory deposits by commercial banks with the central bank.

The constitution and operations of each central bank are described in greater detail below (Appendix I, p. 380).

Commercial Banking

A large number of the commercial banks operating in the CFA countries are French banks with head offices in Paris. There are also postal savings banks, which provide savings deposit facilities, and generally there are national development banks, which extend long-term development loans.

An analysis of total credit to the private sector by banks and other financial institutions is given for five years in Appendix II (Table 18, p. 385). About three fourths of total credit in the BCEAO and BCEAEC areas is short term, although the proportion of medium-term credit has been increasing in recent years. Over half of the total credit is for financing export and import trade. In Madagascar, however, about 95 per cent of total credit is short term.

The division of money supply between currency in circulation and deposit money indicates that commercial banking is not much developed. In the BCEAO area during 1956-59, bank deposits were equal to only half of the currency in circulation, but recently they have increased rapidly (Appendix II, Table 19). In the BCEAEC area and Madagascar, however, bank deposits have been somewhat more important throughout the period, amounting to about two thirds of currency in circulation.

The credit operations of the commercial banks in the CFA countries are largely dependent upon the rediscount facilities offered by the central banks. In 1961, for example, 40-45 per cent of total credit to the private sector in all three areas was financed by the central banks in the form of rediscounts.

Monetary developments

Appendix II, Table 19, shows the development in recent years of money supply, commercial bank credit, and central reserves for the three areas. In the five-year period 1957-61, the total money supply increased by an average of about 10 per cent a year (compound). In the BCEAO and BCEAEC areas, the increase averaged 12 and 7 per cent a year, respectively, but in Madagascar it was only 4 per cent. In 1962, the money supply continued to expand in the BCEAEC area and in Madagascar. In the BCEAO area, however, the 1962 data are not comparable with those in 1961 because, as noted in Table 19, they exclude Mali, which left the BCEAO area on July 1, 1962.

It is not possible to quantify exactly the factors responsible for these changes in the money supply. But, as may be expected, important elements were changes in bank credit to the private sector and changes in the external reserves of the three central banks. In 1961, for example, the change in the money supply in all the CFA countries amounted to F 256 million, while the net total of changes in credit to the private sector and in external assets amounted to F 234 million (the increase in credit to the private sector being F 159 million and the increase in external reserves being F 75 million).

Balance of Payments

Mechanism of external payments

The Operations Account of each central bank is credited or debited with the net payments of the participant countries arising from transactions with both (1) franc area countries other than those belonging to the same central bank and (2) non-franc area countries.

In principle, transactions between CFA countries and the rest of the franc area need not go through a central bank, and hence need not be reflected in the latter’s Operations Account with the French Treasury. Thus, it is legal for a bank or an enterprise with offices in different parts of the franc area to make direct transfers from one office to another within that area. In practice, however, the exchange risk, however small, involved in holding other franc area currencies (including CFA currencies issued by other central banks) severely limits the amount of such direct transfers.

Transfers to and from non-franc area countries are made through the Paris exchange market and are reflected in the Operations Account of the central bank. In order to make a transfer to a non-franc area country, a resident (or a bank) in a CFA country first obtains French francs against payment in CFA francs from his central bank (whose Operations Account is debited for the transaction). He later exchanges these French francs into the required foreign currency in the Paris exchange market.

Since, in practice, almost all external transactions of the CFA countries are recorded in the Operations Account, the movements in external reserves of each central bank reflect, subject to minor omissions, the over-all balance of payments of the participant countries collectively.

Detailed descriptions of the tariff systems and of the exchange regulations applied in the CFA countries are given in Appendices III and IV (see pp. 389-94).

Balance of payments

The balance of payments figures, which are combined for all the countries participating in each central bank, are published in two separate parts: one covers transactions with the rest of the franc area and the other transactions with countries outside the franc area. However, the analysis of transactions is more detailed in the latter than in the former grouping because there are no exchange controls on transfers within the franc area. So far it has not been possible to make reasonable estimates of accounts relating to freight, tourist expenditure, private and banking capital transfers, etc., within the franc area.

Balance of payments with franc area

The balance of payments of the CFA countries with the rest of the franc area for the years 1958-62 are given in Table 1. The export and import figures shown in the table are based on customs data and not on payments data. Furthermore, no deductions have generally been made for trade among countries participating in a common central bank, so that the figures in the table include intra-area trade for BCEAO and BCEAEC countries. On the other hand, some trade between neighboring countries is not recorded in customs returns and, therefore, is not reflected in the official trade figures.

Table 1.

CFA Areas: Balance of Payments with Other Franc Area Countries, 1958–62 1

(In millions of French francs)

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

No sign indicates inflow of funds into the CFA countries; minus sign indicates outflow.

The data for Madagascar in this table and all subsequent tables (unless otherwise noted) include the Comoro Islands; however, the importance of the Comoro Islands in the totals is insignificant.

The 1962 data for the BCEAO area, obtained from the BCEAO, Notes d’Information et Statistiques, exclude Mali.

Because of certain adjustments made, the trade balance is usually not quite equal to the difference between exports and imports.

Subject to these limitations, the main features of the balance of payments of the CFA countries with the rest of the franc area may be summarized as follows:

1. The CFA countries have a sizable deficit on trade account with the franc area. This deficit increased from F 335 million in 1958 to F 560 million in 1959 and to F 770 million in 1961. In 1962 it fell slightly, to F 736 million. Between 1958 and 1962 imports from the rest of the franc area increased by F 553 million, but exports increased by only F 148 million.

2. The CFA countries also have a large deficit on nontrade private transfers. This deficit amounted to F 1,357 million in 1961, compared with F 1,379 million in 1960 and F 1,230 million in 1959.

3. There is a large inflow of official (French) capital to the CFA countries (F 1,804 million in 1961). This approximates the deficit in the other items in the balance of payments of these countries with the franc area. Consequently, the net balance with the rest of the franc area amounted to a deficit of F 47 million in 1960 and of F 323 million in 1961.

Balance of payments with non-franc area

The balances of payments of the CFA areas with the non-franc area are shown in Table 2. The trade figures in the table are payments figures, not customs figures as in Table 1. Although trade with non-franc countries is probably recorded more accurately than trade with the franc area, some between neighboring countries still escapes official records.

Table 2.

CFA Areas: Balance of Payments with Non-Franc Area Countries, 1958–62 1

(In millions of French francs)

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Source: Secrétariat du Comité Monétaire de la Zone Franc. The source gives data in U.S. dollars. They were converted at the rate of F 4.20 = US$1.00 for 1958 and F 4.937 = US$1.00 for 1959–62.

Totals may not equal sums of items because of rounding. No sign indicates inflow of funds into the CFA countries; minus sign indicates outflow.

The CFA countries in their transactions with the non-franc area had an over-all deficit of F 100 million in 1958, but a surplus of F 361 million in 1959 and of F 90 million in 1960. In 1961, the net surplus increased to F 364 million and, judging from incomplete data, the net surplus in 1962 was at least as large as in 1961. The marked improvement in 1959, following the devaluation of the French franc and the CFA franc in 1958, was accounted for both by a sharp increase in exports and by a decline in imports. In 1961, both imports and exports increased, but as the increase in exports was larger than that in imports, the trade surplus rose to F 90 million, from F 9 million in 1960. The CFA countries had a net deficit on account of invisibles amounting to F 41 million in 1961. There has been a substantial inflow of private capital into the CFA countries from non-franc countries, amounting to F 175 million in 1958, F 226 million in 1961, and more than F 300 million in 1962. Most of this inflow was directed to the countries of the BCEAO area, although in 1960 and 1961 the countries of the BCEAEC area received a sizable amount of foreign private capital.

Combined balance of payments

Table 3 shows the combined transactions of the CFA countries with both the franc area and the non-franc area. In view of the differences in the methods of recording transactions with the franc area and with the non-franc area countries, Table 3 should be taken as an indication rather than as a precise record of all the external transactions of the CFA countries.

Table 3.

CFA Areas: Combined Balance of Payments, 1958–62

(In millions of French francs)

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Sources: Based on Tables 1 and 2.

Since this figure excludes the impact of Mali’s balance of payments transactions, it is not comparable with the figures in Tables 4 and 19, which reflect Mali’s balance of payments deficit in the first six months of 1962.

Since almost three fourths of the total trade of the CFA areas is with France, the tendencies noted in the combined balance of payments with the franc area dominate the over-all figures. As with the franc area, the over-all balance of payments shows a large deficit on both trade and invisibles—a deficit that is generally more than offset by the inflow of public capital. As a result, the exchange reserves of the CFA countries collectively have generally shown a rising trend in recent years. At the end of 1961 their combined reserves totaled F 905 million, compared with F 830 million at the end of 1960 (Table 4). They rose further in 1962, to F 1,313 million at the end of that year.

Table 4.

CFA Areas: Foreign Exchange Reserves, End of Year, 1956–62

(In millions of French francs)

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

In principle, the net balance shown in Table 3 should equal the changes in the foreign exchange reserves of the CFA areas. However, the two series do not always coincide. The differences between them may be explained by the following three factors: (1) The interest paid by the French Treasury to the central banks on their balances in the Operations Accounts is reflected in their foreign exchange holdings, but not recorded in the published balance of payments data. (2) Data on public transfers as reported in the balance of payments are the figures supplied by the French Treasury. In practice, there are considerable leads and lags between the Treasury reporting of such transfers and the recording of them in the exchange reserves of the central banks. (3) As mentioned above, the trade figures relating to the CFA areas’ trade with other franc area countries are based on customs data and not payments data.

Imports

Total imports of the CFA countries, classified according to area of origin, are given in Appendix II (Table 20, p. 387). In 1962, total imports according to customs statistics amounted to F 4.4 billion, compared with F 2.6 billion in 1956. This represents an increase of 9.0 per cent per annum (compound) in import value.

France accounts for nearly two thirds of the total imports. Imports from EEC countries other than France about doubled in value, from F 201 million in 1956 to F 409 million in 1962, but in relation to total imports they still constituted only about 9 per cent in 1962. Imports from the United Kingdom and from the United States have remained more or less stationary in value terms.

In Appendix II, Table 21, imports have been classified into four broad categories: petroleum products, raw materials and semimanufactured goods, capital goods, and consumer goods. This classification is necessarily arbitrary, since various goods might be placed in more than one category. Thus, motor vehicles could be classified either as (durable) consumer goods or as capital goods. With this reservation, imports of consumer goods accounted for about 57 per cent of total imports during the six-year period 1957-62, intermediate goods (petroleum products, raw materials, and semimanufactured goods) for about 22 per cent, and capital goods for another 21 per cent. Of the consumer goods imports, textiles and food products were the most important items. The striking feature about the composition of imports is that the percentage changes from year to year, or over the six-year period as a whole, were insignificant, with the possible exception of imports of foodstuffs, which declined somewhat: in 1956 imports of foodstuffs accounted for 25 per cent of total imports and by 1962 they were only 20 per cent of the total.

Exports

Appendix II, Table 22, gives total exports from CFA countries by destination. Total exports according to customs statistics amounted to F 3.2 billion in 1961, compared with F 2 billion in 1956. This represents an average annual increase of 10.4 per cent (compound), slightly larger than that for imports. France is the most important customer of CFA countries, accounting for nearly 60 per cent of their exports in 1961. A large number of CFA export products enjoy considerable preferences in the French market. Marketing arrangements and preferences for some of the major export products are described in the following section.

Appendix II, Table 23, analyzes total exports by major commodities. Receipts from coffee exports accounted for more than 25 per cent of total CFA export receipts in 1956-58 and for about 21 per cent in recent years (1959-61). Other important export products are groundnuts and groundnut oil (19 per cent in 1959-61), cocoa (13 per cent), wood and wood products (7 per cent in 1956, rising to 14 per cent in 1961), and cotton (4 per cent in 1959-61). Mining products have increased in importance, from about 3 per cent of total exports in 1956 to about 6 per cent in 1961.

Marketing Arrangements for Exports

Agricultural products constitute almost 70 per cent of the total exports of the CFA countries. The geographical and climatic conditions in these countries do not permit a large diversification of production, so that the agricultural products exported in quantity are few in number, e.g., coffee, cocoa, groundnuts, cotton, bananas, and wood products. This lack of diversification is still more marked for each CFA country taken separately. For example, in 1961 groundnuts and groundnut oil accounted for over 80 per cent of the total value of Senegal’s exports, coffee and cocoa for 70 per cent of Ivory Coast’s exports, and cotton for 80 per cent of Chad’s exports.

In recent years, the prices of most of the agricultural exports from the CFA countries have fluctuated considerably in world markets. In order to avoid abrupt changes in export prices and in the purchasing power of CFA countries, France grants special preferences to a number of commodities imported from those countries. In addition, stabilization funds have been established in the CFA countries, so as to guarantee relatively stable internal prices to the producers of these commodities.

The French preferences for exports from CFA countries are given in various ways. For some commodities, e.g., groundnuts and sugar, France guarantees a minimum price in the French market which is remunerative to the CFA producers. For other commodities, e.g., palm oil and pepper, the French tariff differentiates in favor of commodities from CFA countries vis-à-vis imports from other countries. For coffee and some other products, this protection is supplemented by import quotas limiting imports of coffee from non-franc area countries. Lastly, for some commodities, e.g., cotton, France gives a direct producers’ subsidy to encourage production in the CFA countries.

Beginning in 1954, the CFA countries established special stabilization funds (Caisses de Stabilisation des Prix) for most of their agricultural exports. The purpose of these funds is to prevent extreme cyclical fluctuations in producers’ prices by guaranteeing the producers relatively stable prices. The operations and functions of these stabilization funds differ from those of the “marketing boards” used in the English-speaking African countries. As their name implies, the marketing boards engage in both the purchase and sale of products for export, and thus eliminate all private foreign trading in the chosen products. In contrast, the stabilization funds seldom market the products themselves and do not eliminate private trading. They fix producers’ prices and ensure that the local exporters pay these prices to the producers. The stabilization funds in turn pay a subsidy to (impose a levy on) the exporters when export prices are lower (higher) than the c.i.f. equivalent of producers’ prices.

The financial resources of the stabilization funds are derived partly from the levies imposed on exports to France (which usually guarantees prices higher than the prices paid to producers) and partly from a share of the governmental duties on exports. In addition, the funds are eligible to receive loans from a French central fund—Fonds National de Régularisation des Cours des Produits d’Outre-Mer (FNRCPOM).

The FNRCPOM, which obtains its resources from the French budget, was established in 1955 to help the CFA stabilization funds in their price stabilization operations during periods of low prices. Each year, the FNRCPOM fixes its “intervention” prices for various products. Whenever the market prices fall below these prices, the stabilization funds can obtain loans from the FNRCPOM. Although the FNRCPOM is authorized to advance loans only when the market prices fall below its “intervention” prices, the total amount of its loans depends on the over-all financial situation of both the FNRCPOM and the stabilization funds.

The subsections below describe in greater detail the marketing arrangements for each of the major CFA export products, and any preferential treatment given by France to imports from the CFA countries.

Coffee

Coffee is the most important export product of the CFA countries, accounting for approximately 25 per cent of the total value of their exports. Production of coffee in the CFA countries increased from some 90,000 metric tons in the crop year 1951/52 to about 300,000 metric tons in 1960/61 and then fell to about 200,000 metric tons in 1961/62 (Table 5). Exports increased from 187,000 metric tons in 1957 to 239,000 metric tons in 1961. Ivory Coast, with an estimated production of 102,000 metric tons in 1961/62, is the major CFA coffee producer. Madagascar, Cameroon, and Togo are the other main producers. Most of the coffee grown in the CFA countries is of the robusta type.

Table 5.

Coffee: Production in CFA Countries, Crop Years, 1956/57–1961/62

(In thousands of metric tons)

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

Provisional estimates.

Data for years 1956/57–1958/59 include Guinea.

France gives preferential treatment to imports of coffee from the CFA (and other franc area) countries by admitting this commodity free of any import duty. In contrast, imports of coffee from non-franc area countries are subject to an ad valorem duty of 18 per cent (the duty on imports from other EEC countries and associates is 13 per cent) and are restricted by import quotas.5 The French Government also guarantees a fixed minimum price for CFA coffee imports into France. Until 1959, this price guarantee applied to all such imports. Since then, however, it has been limited to quotas agreed with each CFA exporting country in annual bilateral negotiations.

As a result of these preferences, France has been the largest purchaser of CFA coffee, taking about 70 to 75 per cent of total exports until 1959. During the past two years, however, exports to countries other than France, especially to the countries in the European Economic Community (EEC) and to the United States, have increased considerably. In 1961, France absorbed only 62 per cent of total exports of coffee from the CFA countries (Table 6).

Table 6.

Coffee: Exports of CFA Countries, 1957–61

(In thousands of metric tons)

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

The increase in exports of coffee from the CFA countries to countries other than France is due partly to the limitations imposed on French preferential treatment for CFA coffee and partly to an increase in the demand by the rest of the world for robusta type coffee, following a relative decline in world market prices for this type compared with arabica coffee.

As indicated in Table 7, coffee prices in the French market are kept above the world market prices. Furthermore, while coffee prices in the world markets have declined sharply since 1958, those in the French market have been allowed to decline very little. Consequently, in 1961, average coffee prices in the French market were some 60 per cent higher than prices in other world markets. From the data in the table, it is apparent that the CFA countries enjoy substantial financial benefit as a result of French preferential prices for their coffee.

Table 7.

Coffee: Average Price for Robusta Courant From Ivory Coast and Estimated Financial Advantage to CFA Countries, 1956–61

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Source: Data supplied by the French authorities.

Prices before and after devaluation of the French franc.

Price advantage per unit multiplied by total exports of producing countries.

In 1962, the coffee price in France remained basically the same, whereas the world market price tended to increase. There was thus a reduction in the spread between the two prices and in the financial benefit accruing to CFA countries from the protected market in France.

It should be noted that a relatively small part of the financial gain accrues to the CFA producers of coffee. A part of the gain is absorbed by the coffee stabilization funds and by various CFA governments, through levies and taxes on exports of coffee. In 1961, the various components of the price in France of F 3.23 per kilogram of robusta courant from Ivory Coast were as follows: producers’ price, F 1.54; export tax, F 0.45; freight insurance, F 0.52; and levies by the stabilization funds, F 0.72.

The receipts from export taxes on coffee are an important part of the budgetary receipts of some of the CFA governments. In 1959 and 1960, for example, these receipts represented 13 and 14 per cent, respectively, of the total budgetary receipts of Ivory Coast.

Groundnuts and oil

Exports of groundnuts and their products account for about 20 per cent of the total export receipts of the CFA countries. The most important producer is Senegal, which provides nearly 80 per cent of the total CFA exports of groundnuts and their products; Niger and Mali are the other main producers. Prior to World War II, most of the commercial groundnut crop was exported unprocessed. Since then, the groundnut-crushing industry has developed in the CFA countries, and now about 40-45 per cent of their commercial crop is processed and exported in the form of oil.

It will be seen from Table 8 that most of the CFA exports of groundnuts and groundnut oil go to France. Until 1959, France obtained nearly all its requirements of groundnuts from the CFA countries; in recent years, however, these supplies have been supplemented by purchases from other countries, mainly Nigeria.

Table 8.

Groundnuts and Oil: Exports of CFA Countries, 1956–61

(In thousands of metric tons)

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Sources: Total exports are from Commonwealth Economic Committee, Vegetable Oils and Oilseeds (London, 1963); data on exports to France have been supplied by the French authorities.

France admits free of import duty both groundnuts and groundnut oil from the CFA countries. On imports from the non-franc area, there is a duty of 9 per cent on groundnuts (but this duty has been suspended in recent years) and of 16.2 per cent on groundnut oil; also, there are quantitative restrictions on both these products.

Each year France guarantees, by an agreement with the CFA countries, to buy a certain amount of groundnuts at a fixed price which is higher than the world market price. For groundnut oil there is no price guarantee, but the prices in the French market are maintained above the world market price by controlling imports into France.

In France, the Société Interprofessionnelle des Oléagineux Fluides Alimentaires (SIOFA) has control over all imports of groundnuts, groundnut oil, fluid oils, and oilseeds. Until 1959/60, SIOFA used to fix two intervention prices for various specified oils and oilseeds: (1) the minimum price, at which SIOFA stood ready to purchase in the CFA countries all the exportable production if no other French buyers were found at that price; and (2) the maximum price, at which SIOFA allowed imports from the non-franc area if no supplies could be obtained at that price from the franc area. However, beginning with the 1960/61 season, SIOFA has fixed only one price and has guaranteed to buy groundnuts and groundnut oil from the CFA countries up to amounts agreed in bilateral negotiations between SIOFA and each CFA country. Thus, there are two sides to the operations of SIOFA. On the one hand, it carries out the bilateral agreements with the CFA countries by importing from these countries the agreed amounts of oils and oilseeds. On the other hand, by regulating imports into France it maintains the guaranteed prices in the French market. Although SIOFA may obtain CFA and non-CFA supplies of oils and oilseeds at different prices, it maintains one price in the French market. It may thus make some profit on transactions in non-CFA supplies if the latter are obtained at prices lower than the prices in France.

In the CFA countries, the local stabilization funds fix producer prices, after taking account of the guaranteed price in the French market. Because France absorbs the entire CFA output of exportable groundnuts and oil, the stabilization funds have not needed the financial support of FNRCPOM since 1957/58, when groundnut prices fell and the stabilization funds were in financial difficulties. The loans then obtained have since been repaid.

The average prices for groundnuts and groundnut oil in both the London and the French markets, and the estimated financial gain to the CFA countries from the French preferences, are given in Table 9. From this table, it is seen that in recent years the price advantage per kilogram has been higher for groundnut oil than for groundnuts. Between 1958 and 1961, the price advantage per kilogram of exports enjoyed by the CFA countries in the French markets declined for both groundnuts and groundnut oil, because the prices in the world market rose while the preferential prices in the French market remained more or less the same. In 1961, of the total financial advantage of F 61 million for groundnuts and groundnut oil, two thirds was due to exports of groundnut oil and only one third to exports of groundnuts.

Table 9.

Groundnuts and Groundnut Oil: Average Prices and Estimated Financial Advantage to CFA Countries, 1956–61

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Source: Data supplied by the French authorities.

In 1962, world market prices for groundnuts and groundnut oil showed a substantial decline. In France, the price for groundnuts was maintained at the same level as in 1961; that of groundnut oil declined, but not to the same extent as the world market price. As a result, there has been a substantial increase in the spread between the French and the world market prices, and an increase in the financial benefit accruing to the CFA countries from the protected market in France.

Like coffee, groundnuts and groundnut oil are subject to export duties by the CFA governments. In Senegal, for example, the export duty on groundnuts is about 12 per cent of the value at the port of shipment, and it accounted for about 8 per cent of total budgetary receipts in the fiscal year 1961/62.

Cocoa

Exports of cocoa account for about 13 per cent of the total export receipts of the CFA countries. Nearly 94 per cent of the average export volume in 1959 and 1960 came from Cameroon and Ivory Coast; Togo and Gabon account for the remainder. Receipts from cocoa accounted for 34, 30, and 23 per cent of the export receipts of Cameroon, Togo, and Ivory Coast, respectively. Unlike most other main CFA export products, only about one third of the exports of cocoa went to France in 1961 (Table 10). The Netherlands and the United States are the other two principal markets for CFA cocoa; since 1958, however, exports to the U.S.S.R. have become important, averaging 23 million pounds a year.

Table 10.

Cocoa: Exports of Cameroon and Ivory Coast, 1950–54 Average and 1958–61

(In millions of pounds)

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Source: U.S. Department of Agriculture, Foreign Agriculture Circulars (Cocoa Beans).

For Cameroon, January-September only.

Total may not equal sum of items because of rounding.

In recent years, about 85 per cent of French imports of cocoa have come from the CFA countries. However, unlike coffee and groundnuts, cocoa from the CFA countries does not enjoy preference in the French market. Prices in France are about the same as in the world market (Table 11), the minor differences in price reflecting differences in quality and freights.

Table 11.

Cocoa: Average Prices, 1956–61

(In French francs per pound)

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Source: Data supplied by the French authorities.

Eight-month average.

Prices before and after devaluation of the French franc.

Although there is no price guarantee for CFA cocoa in the French market, the FNRCPOM fixes its own intervention price and makes loans to the local stabilization funds, which guarantee to producers minimum prices in their respective countries. The intervention price is related to the world market price but avoids the latter’s fluctuations. In the 1956/57 season, when cocoa prices declined sharply, the FNRCPOM advanced nearly F 26 million to the local stabilization funds. These loans have since been repaid and no advances are outstanding at present.

The various cocoa-producing CFA countries levy an export tax on cocoa exports. For the 1960-61 season, the following components entered into the f.o.b. price of F 2.71 per kilogram for cocoa exports from Ivory Coast: producers’ price, F 1.90; export taxes, F 0.56; internal transport cost, F 0.25.

Export taxes on cocoa are an important source of governmental revenue in the major cocoa-producing CFA countries. In 1959, they accounted for 12 per cent of total budgetary receipts of Cameroon and for 8 per cent of such receipts of Ivory Coast.

Bananas

Bananas account for nearly 3 per cent of the total export receipts of the CFA countries, Cameroon and Ivory Coast being the two important CFA producers. (In the entire franc area, however, Martinique and Guadeloupe are the two most important producers of bananas.) Imports of bananas from the franc area are given preferential treatment by France, where they enter free of any import duty or quantitative restriction.6 In contrast, bananas from the non-franc area are subject to an import tax of 20 per cent and to import quotas.

In France, the volume and price of imports of bananas are regulated by the Comité Interprofessionnel Bananier, which represents importers as well as the interested administrative agencies. It appears that imports from the franc area countries account for about 85 per cent of France’s consumption of bananas.

The restrictions on imports into France of bananas from the non-franc area has resulted in a higher price being obtained by the CFA producers in the French market. The average prices prevailing in the French and Hamburg markets and the estimated financial benefit enjoyed by Cameroon and Ivory Coast are shown in Table 12.

Table 12.

Bananas: Average Prices and Estimated Financial Advantage to Cameroon and Ivory Coast, 1957–61

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Source: Data supplied by the French authorities.

Average price for bananas imported from the entire franc area.

Prices before and after devaluation of the French franc.

The CFA countries levy an export tax on bananas. In Cameroon, this tax in 1960 amounted to F 0.09 per kilogram, roughly equivalent to 10 per cent of the average price in France.

Cotton

Receipts from exports of cotton account for some 5 per cent of the total export receipts of the CFA countries, but for nearly 80 per cent and 50 per cent, respectively, of the total export receipts of Chad and the Central African Republic—the two major producers of cotton in the area.

Data on the geographical distribution of CFA cotton exports are not available, but the import data of France, Belgium, the Federal Republic of Germany, and the United Kingdom show that until 1959/60 almost all the cotton exports of Cameroon and the countries of former French Equatorial Africa went to France (Table 13). Shipments to other countries, especially to Belgium, rose rapidly between 1958/59 and 1960/61. The increase in exports to Belgium was probably due to the fact that Belgium was unable to obtain sufficient supplies of cotton from Congo.

Table 13.

Cotton: Exports of and Imports from Cameroon and Former French Equatorial Africa, Crop Years, 1957/58–1961/62

(In thousands of bales)

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Source: International Cotton Advisory Committee, Cotton, World Statistics.

French requirements of cotton exceed CFA production, and in the last few years cotton from the CFA countries has averaged only about 15 per cent, by value, of total cotton imports into France. There are no special preferences, in the form of either quotas or tariff protection, in favor of CFA cotton in the French market. However, the prices paid to the CFA producers are guaranteed by the local stabilization funds, which in turn are supported by the French-operated Fonds de Soutien de Textiles des Territoires d’Outre-Mer (FSTTOM). Until recently, the FSTTOM obtained its resources mainly from an allocation of part of the revenues from a special tax levied in France on textiles. This tax has now been discontinued and the FSTTOM obtains its financial resources from the general French budget. These budgetary allocations are made each year and have averaged F 10-15 million annually.

The cotton stabilization funds in the CFA countries lose on their operations, since the prices prevailing in the French (and other) markets are not sufficient to provide a “remunerative” price to the producers in addition to the high costs of transport from the interior to the port of export and the large export taxes levied by the governments. However, the stabilization funds are reimbursed by grants from the FSTTOM, the amount of aid depending upon the volume of exports, the world price of cotton, and the price guaranteed to producers in the CFA countries. Between the time when it began operations in 1956 and the end of 1960, the FSTTOM is reported to have paid to the local stabilization funds about F 55 million for subsidies on cotton (of which F 31 million went to Chad and the Central African Republic) and loaned F 20 million. In 1961, aid amounted to F 10 million. It is estimated that the aid given to these countries amounted on average to 7-10 per cent of the international price of cotton.

It would seem that the high export price for cotton in the CFA countries is a result not of high prices paid to the cotton producers but of the high costs of ginning, high internal transport costs, and government export taxes. Thus, during the 1960/61 season, the cotton producers in Chad obtained only F 0.52 per kilogram of cotton out of an f.o.b. price of F 3.10 per kilogram, the rest being absorbed by the cost of ginning (F 0.94), transport (F 1.29), and export taxes (F 0.35).

The CFA countries are at present engaged in research with a view to increasing the total production of cotton and reducing its cost. In the last few years, ginning processes are reported to have been improved, which has reduced the proportion of cotton waste.

Other products

The above five products account for nearly 65 per cent of the total export receipts of the CFA countries. Other main export products of these countries are wood and wood products (9 per cent), palm products, minerals, and hides and skins (3 per cent each), and sugar and vanilla (1 per cent each). With the exception of palm oil and sugar, these other products enjoy no special preferences in the French market and are sold competitively in the world markets.

Imports of palm oil into France from outside the franc area are subject to import quotas. In addition, France guarantees to the CFA producers a fixed price which is higher than the world market price. In 1960 the price difference in favor of the CFA producers was estimated at F 0.13 per kilogram, and in 1961 at F 0.07; and the total financial advantage for CFA exports of palm oil to France at F 2.17 million in 1960 and F 0.86 million in 1961. The market for sugar is also regulated in the entire franc area to the advantage of the domestic producers. In 1961, the financial advantage accruing to the CFA producers of sugar was estimated at nearly F 25 million.

Price advantage and total financial gain

The above discussion shows that many of the exports of CFA countries enjoy considerable preferences in the French market and are protected against competition from other countries by French price guarantees and quota restrictions. Such products account for nearly two thirds of the total export receipts of the CFA countries; the most notable ones are coffee, groundnuts and groundnut oil, bananas, palm oil, and sugar. In addition, France grants a subsidy on the production of cotton in the CFA countries. The remaining one third of the CFA exports, which includes cocoa, minerals, and wood products, is sold at world market prices and, to a large extent, in countries outside the franc area.

As shown in Table 14, the total financial advantage offered by France to exports from the CFA countries in 1961 is estimated at F 343 million ($69 million). In that year, the total export receipts of the CFA countries amounted to about F 3.2 billion, so that the financial advantage gained by them as a result of French preferences for CFA exports amounted to about 10 per cent of their total export receipts.

Table 14.

CFA Countries: Estimated Financial Advantages Obtained Through French Preferences, 1961

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Source: Data supplied by the French authorities.

Subsidy to producers (see p. 367).

Pepper, gum, grated coconut, etc.

Trade Preferences and Elimination of Support Prices Under EEC Arrangements

All the CFA countries (and also Mali) are at present associated with the European Economic Community (EEC).7 The original terms of association were set out in Articles 131-136 of the Treaty of Rome, and in an implementing convention, annexed to the Treaty, which covered the five-year period 1958-62 and expired on December 31, 1962. After protracted and often difficult negotiations between the EEC and the associated African countries, a second Convention of Association for another five-year period was initialed on December 20, 1962 in Brussels. This new convention was formally signed on July 20, 1963 in Yaounde, Cameroon, and now has to be ratified by the 6 EEC Member States and at least 15 associated countries. It is unlikely that it will become effective before January 1, 1964. The EEC is presently studying ways and means of bridging the gap between the expiration of the old convention and the entering into force of the new one.

According to the basic rules of the new convention, the Member States of the EEC and the associated countries will form a free trade area to be achieved in steps; at the final stage, all movements of goods within the free trade area will, in principle, be free from restrictions and customs duties. Contrary to the usual provisions of a customs union, the Common External Tariff (CET), which is applicable to third countries, will be applied only by the Member States of the EEC; the associated countries retain freedom of action with respect to tariffs vis-à-vis third countries.

Trade between Member States and associated African Countries

Elimination of internal tariffs

Imports into the EEC. Associated countries will benefit from the progressive elimination of tariffs between the Member States according to the timetable established by the Treaty of Rome and by past and future decisions to accelerate this elimination. In addition, for nine major tropical products,8 the elimination will be specially accelerated in order that these products may be admitted free of duty from the date when the new convention becomes effective. For these products, the CET duties (previously reduced, see Table 15) will become effective at the same time.

Table 15.

European Economic Community’s Common External Tariff for the Principal Tropical Commodities

(In per cent)

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Source: Newspaper reports.

As established by the Treaty of Rome.

No entry indicates that the original EEC tariff will be applied.

Imports into the associated countries. Any discrimination between the six Member States will have to be abolished not later than six months after the new convention becomes effective. In accordance with a special protocol annexed to the new convention, tariffs on imports from the EEC will be reduced at an annual rate of 15 per cent beginning at the same date. As an exception to the general principle of tariff reciprocity between Member States and associated countries, the latter will have the right to impose customs and fiscal duties for budgetary reasons and to protect their industries and economic development.9 If the associated countries take advantage of this exception, the resulting duties must not be discriminatory between the six Member States.

Elimination of quantitative restrictions

Imports into the EEC. Products of the associated countries will also benefit from the elimination of quotas between Member States pursuant to the Treaty of Rome and past and future acceleration decisions. France is the only EEC country that still applies extensive quantitative restrictions on tropical products, and there the progressive elimination of quotas will ultimately force the protected CFA products to face competition from similar imports from other associated countries.

Imports into the associated countries. Not later than four years after the new convention has become effective, the associated countries will have to abolish all quantitative restrictions against imports from EEC Member States. The elimination will take place gradually, in accordance with a special protocol annexed to the convention, providing for each associated country to establish a global import quota applicable to all Member States. This basic quota will be 175 per cent of that in force in 1959, or 15 per cent of imports of the product in question, whichever is the less. It will be increased by 20 per cent in the first and in the second year after the convention has become effective, by 30 per cent in the third year, and by 40 per cent in the fourth year.

The associated countries have the right to maintain or to impose quantitative restrictions for three purposes: (1) to protect their economic development and industrialization; (2) to protect their balance of payments; and (3) in regard to agricultural products, for reasons resulting from the existence of regional market organizations.

Trade with third countries

According to Article 19 of the Treaty of Rome, the customs duties under the CET were established, in principle, at the level of the arithmetic average of the duties applied in the Member States on January 1, 1957. However, the CET duties for many tropical products were established only in subsequent negotiations between the EEC Member States. The original CET duties thus established for the commodities of special interest to the CFA countries are shown in Table 15. As a result of the strong opposition from the United States and other third countries, the EEC agreed to lower the CET duties for a number of important tropical products (Table 15).

According to very complicated rules, the national tariffs of the Member States are to be adjusted to the CET duties in three steps, at the same time that the internal tariffs are eliminated between themselves. However, for the major tropical commodities, which will be admitted free of duty into the EEC when the new convention becomes effective, the national tariffs will be adjusted in one step to the CET duties at the same date.

As noted above, the prospective CET duties apply to imports from EEC Member States only. Associated countries, in principle, are free to have any external tariff they wish vis-à-vis third countries. In the new convention, it is stated explicitly that the associated countries have the right to conclude customs unions and free trade areas among themselves as well as with third countries, provided that they are compatible with the general principles laid down. However, associated countries are in no case to treat EEC Member States less favorably than third countries.

Elimination of support prices and compensation by financial assistance

In the descriptions above (pp. 356-69) of the trade preferences and the support prices accorded by France to many tropical products of the CFA countries, it was noted that, by various devices, the prices of these selected commodities were held higher in France than in the world market. It is obvious that the elimination of all duties and quantitative restrictions on imports from other Member States of the EEC and the associated countries not in the franc area would make it impossible for France to maintain its closed and protected market for these tropical products. Therefore, the elimination of the support price system was one of the principal and most difficult subjects in the negotiations leading to the new Convention of Association. It was recognized by the EEC that the elimination of this system would place a heavy burden on the economies of most of the CFA countries, and the principle was established that these losses should be compensated by increased financial assistance from the EEC.

The abolition of the support price system and the granting of financial assistance by the EEC were thus closely linked. It was stated that the main objectives of extending financial assistance to the associated countries were gradually to eliminate the machinery of support prices in the franc zone and to enable the CFA countries to consolidate and diversify their economic structure. The total amount of financial aid to be extended to the associated countries is $730 million for the five-year period of the new convention: $500 million will be for social and economic development and $230 million to help production and diversification. The aid for production is meant to assist the associated countries to adapt their economies progressively to the requirement of selling their exports at world market prices. That for diversification is intended to assist the associated countries in reforming their economic structure and in realizing the appropriate diversification in their agricultural, industrial, and commercial sectors.

Distribution of financial assistance

The absence or presence of support prices in favor of associated countries was an important criterion for the distribution of the $230 million aid for production and diversification. For the purpose of distributing this amount, the associated countries were divided into three groups:

1. The associated countries outside the franc area will receive $32 million to help in diversification. It will be allocated as follows: Burundi, $5.25 million; Congo (Leopoldville), $15.00 million; Rwanda, $5.25 million; Somalia, $6.50 million.

2. Three countries which agreed to trade their export products at world market prices from the date when the convention becomes effective will receive $15 million to help in diversification: Gabon, $4 million; Mauritania, $5 million; Upper Volta, $6 million.

3. Eleven countries will receive $183 million to help both production and diversification: Cameroon, $15.8 million; the Central African Republic, $6.8 million; Chad, $5.7 million; Congo (Brazzaville), $6.4 million; Dahomey, $5.5 million; Ivory Coast, $46.7 million; Madagascar, $31.6 million; Mali, $5.6 million; Niger, $6.5 million; Senegal, $46.7 million; Togo, $5.7 million.

Of the total of $230 million extended, three fourths will be to help production and one fourth to help diversification. The amount available to each country will be divided into five annual installments, in which the aid to help production will become progressively smaller; at the end of the five-year period, this type of aid will disappear. The terms and conditions under which the aid is given are laid down in a special protocol annexed to the convention. The protocol envisages, in particular, that each associated country will submit for approval by the EEC a five-year program for the use of the funds, and that the EEC will review at the end of each year whether the funds have been used in accordance with the principles laid down in the protocol. If the EEC finds that this condition has not been fulfilled, it can take “all appropriate measures.”

Timetable for reduction of support prices

As a quid pro quo, the third group of associated countries agreed to a gradual elimination of support prices for their products, until at the end of the five-year period of association these products will be traded at world market prices. The reduction of support prices is to take place according to the following timetable:10

1. For coconuts, pepper, palm oil, cotton, and gum arabic, trading at world market prices will start at the beginning of the 1963/64 harvest year.

2. For rice and sugar, trading at world market prices will begin when the common agricultural policy of the EEC for these products becomes effective.

3. For oilseeds and oils, trading at world market prices will also begin when the common agricultural policy for these products becomes effective, but not later than the beginning of the 1964/65 harvest year.

4. For coffee, the reduction in support prices will take place in annual steps. The process of reduction will start with the harvest year which opens in the second half of 1963, and will be completed at the latest at the beginning of the harvest which opens in the second half of 1967. The annual and progressive rate of reduction of the difference between the coffee price obtained in the French market and the world market price will be between 15 per cent (minimum) and 35 per cent (maximum). The Council of Association (composed of representatives of the EEC and the associated countries) will determine the exact rate of reduction at the beginning of each harvest year.

Bananas are the only major tropical commodity not included in the above list; the price support for bananas may therefore continue.11 The CET duty on bananas will not be lowered from the originally agreed level of 20 per cent, and the Federal Republic of Germany will retain its large “customs quota,” which enables it to continue to import bananas duty free from third countries (largely Latin America). France will maintain the outlet guarantees which it has extended to the CFA countries, and Italy those which it has extended to Somalia, and the two countries will be authorized to maintain, with certain modifications, their quantitative restrictions on banana imports to make these guarantees effective.

Foreign Public Aid to CFA Countries

In recent years, the CFA countries have received large sums of foreign public aid. The average annual inflow of public capital into the CFA countries, as recorded in their balance of payments, amounted to more than F 1.5 billion during 1958-60. By far the largest part of this aid was supplied by France, but aid from the European Economic Community also was important. Aid from other countries has been relatively small.

Aid from france

French public aid to the CFA countries was expected to amount to F 1,435-1,465 million in 1962; similar amounts were received in 1960 and 1961. The total of French aid for the years 1960 and 1962 is shown in Table 16, but the figures are not strictly comparable (see footnote 13).

Table 16.

CFA Countries: Public Aid from France, 1960 and 1962

(In millions of French francs)

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Source: Data supplied by the French authorities.

Grants

In 1960, about 88 per cent of the French public aid received by the CFA countries was in the form of grants and only about 12 per cent in the form of loans. Except for grants for education and aviation purposes, which are disbursed by the respective French ministries, all French grants to the CFA countries are channeled through a French fund—Fonds d’Assistance et de Coopération (FAC)—which replaced, in 1959, the Fonds d’Investissement pour le Développement Economique et Social des Territoires d’Outre-Mer (FIDES). FAC receives all its financial resources in annual appropriations from the French budget. The grants made by FAC are negotiated bilaterally between France and the countries concerned, and mainly take the forms described below.

FAC aid to the CFA countries for investment purposes may be divided into investment in development projects and investment in cultural and social services, including housing and urban development. The projects to be financed are selected partly on the initiative of national governments and partly on the initiative of the French authorities. The latter select projects of interest to more than one country: scientific research and development studies, housing and urban development, and, in some cases, public buildings. In 1962, total investment aid by FAC is expected to amount to F 565 million, of which F 435 million will be for development projects and F 130 million for social and cultural services.

France continues to supply the CFA countries with a considerable number of civil servants and educational and technical personnel. The number of persons on technical assistance assignments in the CFA countries in 1962 was nearly 8,000, of whom nearly half were teachers. The contributions of recipient governments to the salaries of such personnel vary according to their respective financial situations; they are low in relatively poor countries and fairly substantial in relatively rich countries, such as Ivory Coast. The cost of this technical assistance to the French budget was estimated at F 350-360 million in 1962, but it is expected to decrease gradually in the future.

Aid to equilibrate national budgets has in recent years been quite large, because the current budgets of most of the CFA countries are in a state of disequilibrium, mainly caused by rising current expenditures.12 Until 1960, France undertook to cover the entire current budget deficit of each CFA country. Following the attainment of independence by these countries, this blanket guarantee has been replaced by budgetary aid up to an amount negotiated bilaterally between France and each CFA country annually. For 1962, such aid was estimated at F 180 million, compared with F 152 million in 1961.13

France also provides some grants to the CFA countries for education and for civil aviation. These are merged with the total appropriations for the respective French ministries and are not distinguished separately in the French budgetary documents; their total was estimated at F 90 million for 1962.

Loans

French public loans to the CFA countries for development purposes amounted to F 167 million in 1960; it was expected that they would increase to F 250-270 million in 1962. These loans are administered through the Caisse Centrale de Coopération Economique (CCCE), which is under the direct control of the Ministries of Finance and Cooperation. The CCCE obtains its funds from the French Treasury in the form of advances; at December 31, 1960, the total amount outstanding was F 2.7 billion. The CCCE is also authorized to raise loans on the money market, but so far it has not done so.

CCCE loans are provided either to finance specific projects or to supply the capital of national development banks. The specific projects include power projects, housing construction, agricultural credit, and private enterprises. Except for loans to development banks, which are channeled through state budgets, CCCE loans are not given to governments but are granted to public and semipublic corporations with financial autonomy or to private enterprises. The CCCE loans bear interest at 2½ per cent (3 per cent on loans for power projects) and are generally repayable within 10 or 15 years.

The various projects for which FAC grants and CCCE loans to CFA countries were authorized in 1960 are shown in Table 17.

Table 17.

CFA Countries: FAC Grants and CCCE Loans from France, 1960 1

(In millions of French francs)

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Source: CCCE, Les Investissements Publics Français dans les Etats d’Afrique Noire et Madagascar, les Territoires et les Départements d’Outre-Mer, Opérations de l’Année 1960.

FAC: Fonds d’Assistance et de Coopération.

CCCE: Caisse Centrale de Coopération Economique.

The figures in this table cover authorizations, and therefore are not identical with those in Table 16, which are actual disbursements.

Other forms

The above data do not include the aid that France gives to the CFA countries through its stabilization funds. The two main French funds which disburse this aid are the FNRCPOM and the FSTTOM, whose operations are described in an earlier section (pp. 358-67). In 1960, the (net) advances from the FNRCPOM amounted to F 27.2 million. The FSTTOM, from its beginning in 1957 to the end of 1960, paid to the local stabilization funds a total of F 87 million (F 67 million in the form of grants and F 20 million in the form of advances), of which about F 25 million was disbursed in 1960.

Aid from the European Economic Community (EEC)

The first implementing convention to the Treaty of Rome established a European Overseas Development Fund, the purpose of which was to promote the social and economic development of the associated countries and territories. The Fund was endowed with $581.25 million, to be distributed as grants to associated countries in the five-year period 1958-62. The implementing convention prescribed not only the contributions to be made by each Member State, but also the amounts to be distributed to the various groups of associated countries; the largest part by far ($511.25 million) was to go to former or present French countries and territories.14

In the first years of its operation, the commitments and disbursements of the Development Fund lagged far behind the timetable laid down in the implementing convention. The difficulties experienced by associated countries in promptly preparing suitable projects, elaborated in detail and properly integrated into coherent development programs, was reported to be the main factor responsible for the delay. More recently, the Development Fund has found it possible to speed up its activities.

On December 31, 1962, the total commitments of the Development Fund amounted to $439 million, of which $398 million was on account of former or present French countries and territories. The five associated countries which had received the largest share of the total were Madagascar ($50 million), Cameroon ($43 million), Senegal ($35 million), the Ivory Coast ($33 million), and Mali ($30 million). After an allowance for projects under active consideration and contingency funds, an amount of $68 million in uncommitted funds was still available at the end of December 1962. When agreement was reached on the new Convention of Association, it was agreed that in the interim period, until the new convention became effective, these uncommitted funds would continue to be available to the associated countries in accordance with the terms and conditions of the old convention.

The new convention envisages total financial assistance of $800 million, of which $70 million will be for still dependent territories for the five-year period of the new convention. Of the total of $730 million to be made available to independent associated countries, $500 million will be for social and economic investment and technical assistance, and $230 million to help production and diversification. The total of $730 million will be distributed in the following forms: $620 million as grants; $46 million as special loans (at “favorable” interest rates and with maturities of up to 40 years, with the first 10 years free of amortization); $64 million as loans from the European Investment Bank on its regular terms and conditions (with the possibility, however, of certain interest rebates by the EEC).

The total resources of $730 million will be contributed by the six Member States as follows: France, $246.5 million; Germany, $246.5 million; Italy, $100 million; Belgium, $69 million; the Netherlands, $66 million; Luxembourg, $2 million.

APPENDICES

I. Central Banking Arrangements in CFA Countries

Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO)

Until 1955 the right of note issue in the countries of French West Africa and in Togo was the monopoly of a private bank, the Banque Française de l’Afrique Occidentale. In that year, a new Institute of Issue—the Institut d’Emission de l’Afrique Occidentale Française et du Togo—was created to issue currency in the area. In 1959, this Institute was transformed into a central bank called the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO).

On May 12, 1961, an Agreement was signed between the seven countries of this area (Dahomey, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta) providing for the establishment of a West African Monetary Union to take effect on November 1, 1962. The Agreement provided that these countries would continue to share a common central bank (the BCEAO) and a common currency.15 However, several changes were introduced in the Bank’s statutes in order to enable it to perform more extended operations than hitherto and to give the participating countries a greater share in its administration. The Bank continues to have its head office in Paris, but the head office can be moved to one of the participating countries by a unanimous decision. The Bank has an agency in each of the member countries.

Operations

The BCEAO continues to be the sole authority for issuing currency in the participating countries. The new statutes provide for an identification of currency by country or agency of issue, to enable the central bank to maintain separate accounts for currency issued in each country. The identification is made by a distinguishing letter in the serial numbers of the banknotes, but banknotes issued by each agency circulate freely in all the member states. The Bank also holds in common the external reserves for the entire area. There are no restrictions on monetary transfers between member states. Under a Convention de Compte d’Opération, agreed between France and the BCEAO, France guarantees unlimited conversion rights for CFA francs into French francs. This is done by the French Treasury granting automatic credits to the BCEAO should the latter’s foreign assets (i.e., its French franc balances with the French Treasury) be insufficient to meet its conversion liabilities.

Previously, the BCEAO was not authorized to grant any credit to the participating governments, except that it could discount customs duty paper (obligations cautionées), consisting mainly of customs duty bills (which represent credit to the private sector). Under Article 15 of the new statutes, the central bank is authorized to extend short-term credit to the member governments, in the form either of direct advances or of rediscounts of Treasury bills presented to it by the commercial banks or of purchases of government securities from the commercial banks. The duration of direct advances by the central bank should not exceed 240 successive days. Treasury bills, to be eligible for rediscount at the central bank, must mature within six months from the date of rediscount. Bank credit granted to any member government cannot exceed either of the following two limits:

1. The central bank’s advances plus the central bank’s and commercial banks’ holdings of Treasury securities shall not exceed 10 per cent of the actual fiscal receipts of the member government during the preceding year.

2. The commercial banks’ holdings of Treasury securities at any time shall not exceed 10 per cent of their average deposit liabilities to private businesses and individuals during the preceding 12 months.

The new statutes of the BCEAO also provide for some widening of credit facilities to the private sector through banks. Previously, the central bank was authorized to grant short-term credit (in the form of either rediscounts of commercial paper or advances) for a period not exceeding six months. Under Article 13 of the new statutes, the Bank may grant such credit for a period not exceeding nine months. (This extension has been made primarily to meet the financial requirements for marketing agricultural products.)

The central bank continues to provide medium-term credit (up to five years) in the form of rediscounts of medium-term bills (Article 17), to finance the export of industrial products or to finance certain development projects in member countries.

Administration

A central Board of Directors—Conseil d’Administration—is responsible for the over-all management of the Bank. In addition, a Monetary Committee is set up in each country to execute at the country level the over-all policy decisions. The Board of Directors, which under the old statutes of the Bank consisted of 16 members (8 representing France and 8 representing the participating countries) consists, under the new statutes, of 18 members (2 from each of the six participating countries and 6 from France).16 The Monetary Committee in each country consists of 5 members, 3 appointed by the member country and 2 appointed from among the central Board of Directors.

Previously, the Board of Directors fixed rediscount ceilings not only for each participating country but also for each commercial bank and eligible enterprise within that country. Under the new statutes, the Board fixes only a “global” rediscount ceiling and other credit facilities to be accorded by the BCEAO to each participating country and the terms on which such credit is to be granted. Each national Monetary Committee is then entrusted with the task of reallocating its global rediscount ceiling among local banks and eligible enterprises. In fixing global rediscount ceilings, the Board of Directors is assisted by the national Monetary Committees, which forward to the Board their estimates for credit requirements in their respective countries.

In addition to fixing the rediscount ceilings, the BCEAO is authorized to prescribe liquidity ratios for commercial banks and to vary the discount rate. However, it is probable that, in the near future at least, rediscount ceilings will continue to be relied upon as the main means of credit control, since the rediscounts of commercial banks with the central bank amount to almost half their credit to the private sector.

The new statutes also provide for some automatic emergency actions by the Board of Directors. If the exchange reserves of the Bank fall below 20 per cent of its sight liabilities (total of domestic and foreign), the President of the Board is required to call an emergency meeting to consider raising the discount rate, reducing the rediscount ceilings, and taking other necessary decisions. If exchange reserves fall below 10 per cent of sight liabilities, the Board must raise the discount rate and prescribe a proportionate reduction in the rediscount facilities granted to each country (Article 44).

Banque Centrale des Etats de l’Afrique Equator et du Cameroun (BCEAEC)

The Banque Centrale des Etats de l’Afrique Equatoriale et du Cameroun (BCEAEC) acts as a central bank for the former four French Equatorial African countries—the Central African Republic, Chad, Congo (Brazzaville), and Gabon—and for Cameroon. Until 1959, the right of note issue in these territories was exercised by the Institut d’Emission de l’Afrique Equatoriale Française et du Cameroun. In that year, the Institute was transformed into a central bank under its present name.

Operations

The Bank is the sole authority for issuing CFA currency in the countries of French Equatorial Africa and in Cameroon. Recently, the Bank began separating its currency notes according to the country where they are issued. Special notes have been printed for Cameroon bearing the picture of the President of Cameroon; for the other four countries, notes are distinguished by a special number assigned to each country of issue. However, all the notes are legal tender in all five participating countries, and there is complete freedom of monetary transfer between them.

The foreign exchange reserves of the participating countries are centrally held by the BCEAEC. However, the Bank has for many years maintained separate statistics for currency circulation, reserves, and credits in Cameroon.

The CFA franc issued by the BCEAEC is guaranteed by France unlimited convertibility into French francs. This guarantee operates in a fashion similar to the arrangements made for the conversion of CFA currency issued by the BCEAO.

The Bank grants both short-term and medium-term credit to the private sector. The conditions for granting such credit are similar to those described above for the BCEAO.

There is no provision, in the statutes of the BCEAEC, for direct central bank credit to the governments. The commercial banks, however, can purchase Treasury bills which may be rediscounted at the central bank, provided the bills mature within six months from the date of rediscount. There is no limit to the amount of Treasury bills that the commercial banks may hold or rediscount with the central bank. However, no Treasury bills have yet been issued by any of the participant governments.17

Administration

Like the BCEAO, the BCEAEC is administered by a central Board of Directors and some authority has been delegated to national Monetary Committees. However, there are significant differences between the two central banks in the composition of the Board and the division between the Board of Directors and the Monetary Committees of authority for making policy decisions.

The Board of Directors of the BCEAEC consists of 16 members, 8 representing France and 8 representing the 5 African participating countries. Four directors represent Cameroon and one each represents the Central African Republic, Chad, Congo (Brazzaville), and Gabon. At present, there are three Monetary Committees, one for Cameroon, one for Gabon, and one for the remaining three countries together.18

The numbers of members of the three Monetary Committees, as well as the French representation on them, differ between the countries. In Cameroon, the Committee consists of 8 members, 5 representing Cameroon and 3 representing France. The Monetary Committee in Gabon has 4 members and the joint committee for the other three states has 6; both groups are divided equally between France and the African states.

Most of the members of the national Monetary Committees are also the members of the central Board of Directors. Thus, the national Monetary Committees are, for practical purposes, committees of the Board of Directors and have wider powers to determine credit policies than their counterparts in the BCEAO. Since 1959, the Board has in fact delegated to the Monetary Committees the power to fix rediscount ceilings for their countries as well as the individual rediscount ceilings for banks and eligible enterprises. The Board of Directors has, however, reserved the right to fix the Bank’s discount rate, since it is considered desirable to maintain a uniform rate within all the participating countries.

The Board of Directors is not under any statutory obligation to increase the discount rate automatically or to reduce rediscount ceilings, even when the external assets of the Bank fall below a given level. It is left to the discretion of the Board to adopt such measures as it deems necessary.

Institut d’Emission Malgache (IEM)

The Banque de Madagascar et des Comores was given in 1927 the privilege of note issue for Madagascar and the Comoro Islands. This bank, which has its head office in Paris, is also the main commercial bank in Madagascar. The Economic and Financial Cooperation Agreement of June 27, 1960, between France and the Malagasy Republic, specified that the note issue privilege of the Banque de Madagascar et des Comores would be terminated and conferred upon a new national institute of issue to be known as the Institut d’Emission Malgache (IEM). In subsequent implementing agreements, it was decided that the IEM would be established on April 1, 1962. However, as an interim measure, and in accordance with a special convention to that effect, it was agreed that the Banque de Madagascar et des Comores would continue to function as the bank of issue, as an agent of the IEM, until December 31, 1963, with the possibility of an extension until June 30, 1964.

Operations

The IEM has the exclusive right to issue banknotes and coins in Madagascar. It also holds the foreign exchange reserves of the country.

The IEM is authorized to extend short-term credit to the private sector. It may discount eligible paper, from banks and other credit institutions, maturing within a period of 180 days. It may also extend short-term credit, secured by real estate, gold, or foreign exchange, to banks or credit institutions, provided that this credit does not extend beyond six months.

The IEM may also discount medium-term paper from banks and credit institutions to finance investment projects or housing construction. The loans represented by this paper, which may not extend beyond five years, must have the prior approval of the IEM. The Board of Directors determines from time to time the total amount of medium-term loans eligible for rediscount.

The IEM may also grant short-term credit to the government. Treasury bills of the Malagasy Treasury having a maturity of not more than six months are eligible for rediscount by commercial banks at the IEM. In addition, the IEM may extend overdraft facilities to the Malagasy Treasury at the prevailing discount rate and for a period not exceeding 240 consecutive days in any calendar year. The total amount of short-term bank credit to the government, i.e., advances from the IEM to the Treasury and the banking system’s holdings of Treasury bills, will be restricted to the greater of two limits similar to those fixed under the new statutes of the BCEAO, as stated above (p. 381).

Administration

The IEM is administered by a Board of Directors consisting of 8 members, of whom 4 are designated by the Malagasy Government and 4 by the French Government. They are designated for a period of four years, but may be reappointed. Decisions are taken by simple majority, and the vote of the President is not decisive. The President of the Board of Directors is elected by the Board in agreement with the French and Malagasy Governments. A Director-General, to be appointed by the Board in agreement with the French and Malagasy Governments, will, beginning January 1, 1964, be in charge of day-to-day operations.

The Board of Directors is empowered to determine the discount rate of the IEM and to prescribe rediscount ceilings and other credit ceilings. It may also require commercial banks in the country to submit to it full information on their operations. The IEM is to be consulted on all legislative and administrative matters relating to monetary, credit, and exchange control policies.

II. Statistics on Money and Credit and on Foreign Trade

Table 18.

CFA Areas: Distribution of Total Bank Credit to Private Sector, 1957–62

(In per cent of total credit) 1

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

The percentage figures have been estimated from a large representative sample, but not from the figures shown here under total credit.

Includes Guinea.

Table 19.

CFA Areas: Money Supply, External Reserves, and Bank Credit, End of Year, 1957–62

(In millions of French francs)

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

Includes Guinea.

The 1962 data for the BCEAO area, obtained from the BCEAO, Notes d’Information et Statistiques, exclude Mali.

Figures in parentheses indicate percentage changes from preceding year.

Includes government deposits and deposits with post offices.

Table 20.

CFA Countries: Sources of Imports, 1956–62

(In millions of French francs)

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

These totals exceed those of Table 21 because they include certain unclassified imports.

Table 21.

CFA Countries: Commodity Composition of Imports, 1957–62

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Source: Secrétariat du Comité Monétaire de la Zone Franc.

Excluding imports of Niger, for which no commodity analysis is available. Total imports (including those of Niger) amounted to F 3,523 million in 1960.

Excluding imports of Dahomey, Mauritania, and Niger, for which no commodity analysis is yet available. Total imports (including these countries) amounted to F 4,131 million in 1961 and F 4,362 million in 1962.

Table 22.

CFA Countries: Geographical Distribution of Exports, 1956–61

(In millions of French francs)

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Source: Secrétariat du Comité Monétaire de la Zone Franc.
Table 23.

CFA Countries: Principal Exports, 1956–61

(In millions of French francs)

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Source: Compendium des Statistiques du Commerce Extérieur des Pays de la Zone Franc, 1956, 1957, 1958; Secrétariat du Comité Monétaire de la Zone Franc, 1959, 1960, 1961. Since the source for data for the years 1956-58 differs from that for the years 1959-61, there are slight inconsistencies between the two periods.

III. Tariffs in CFA Countries

Although the tariff systems of the CFA countries are of four types, their general characteristics may be summarized as follows:

1. All CFA countries levy a fiscal import duty (droit fiscal à l’importation) on most of their imports irrespective of the country of origin. The primary aim of such duties is to provide the government with fiscal revenue, rather than to protect domestic industries. In most countries, the level of such duties, while not particularly high, is by no means insignificant.

2. In addition to fiscal duties, all CFA countries also levy customs duties (droits de douane) on imports from non-franc area countries. Imports from franc area countries are generally admitted free of customs duties.

3. Most CFA countries also levy export duties on their export products. The receipts from such duties generally constitute an important part of the total fiscal receipts of the governments.

More detailed information on the fiscal system for each group of countries is given below.

BCEAO countries

Import tariffs

In former French West Africa, trade between the constituent territories was unrestricted. There were no tariff barriers between them, and a common external tariff applied to all trade with the outside world. On June 9, 1959, Dahomey, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta agreed to form a West African Customs Union providing formally for a continuation of the then existing tariff system. Guinea did not participate in this agreement.

The import tariff of the West African Customs Union consists of a dual system of import duties: (1) fiscal import duties, which are uniformly applied to all imports, irrespective of their origin, and (2) customs duties, which are applied only to imports originating outside the French franc area. The rates of customs duties vary according to the country of origin of the imports. Imports from EEC countries (other than France) now pay a preferential tariff equivalent to the “minimum” tariff minus 13 per cent. Imports from all other countries, except Japan and Portugal, pay the “minimum” tariff; imports from Japan and Portugal pay the “general” tariff, which is three times the “minimum.” Both fiscal and customs duties are assessed on the c.i.f. value of imports.

Among the various commodities, fertilizers and tractors are exempt from fiscal import duties. Imports of some other essentials, such as jute bags and concentrated milk, pay a fiscal import duty of 5 per cent; other less essential products pay fiscal import duties ranging up to 20 per cent.

The minimum customs duties range from zero on imports of sugar and fertilizers to 25 per cent on imports of cars and tires. For most commodities, customs duties are just as high as, or higher than, the fiscal import duties, and provide a significant measure of protection to imports from the franc area. To cite a few examples, textile imports from France receive a tariff preference of 15-20 per cent, wine 20 per cent, and automobiles 25 per cent.

Countries whose products attract the general tariff are, for all practical purposes, excluded from the BCEAO markets. For example, cotton textile imports from Japan are subject to a total import duty of 75 per cent, compared with 15 per cent on textile imports from France.

Export tariffs

The more important exports of the BCEAO countries, e.g., cocoa, coffee, oilseeds, and rough wood, bear an export tax ranging from about 5 per cent to 22 per cent. Export taxes on other exports, e.g., hides and skins, rubber, palm oil, and cotton, are relatively low. Export duties are not uniform in the BCEAO countries.

BCEAEC countries, excluding Cameroon

Import tariffs

The former French Equatorial African countries—the Central African Republic, Chad, Congo (Brazzaville), and Gabon—also inherited a common external tariff with no tariff barriers between them. In 1959, they agreed to join together in an Equatorial Customs Union designed to ensure the free movement of trade and capital between them, and to continue to have a common external tariff.

With effect from July 1, 1962, common customs duties were introduced by the Equatorial Customs Union, which was expanded to include also the Federal Republic of Cameroon. The duties do not apply to products originating in France or in the 12 member countries of the Organization of African and Malagasy States (which includes all CFA countries except Togo). The application of the new duties to products imported from member countries of the European Economic Community (EEC) was suspended. Their application was also suspended on goods imported into West Cameroon (former British Southern Cameroons and now part of the Federal Republic of Cameroon) directly from the United Kingdom.

The new duties provide for rates ranging from 5 per cent to 30 per cent of the c.i.f. value of imported goods. A rate of 30 per cent applies to a large number of agricultural and manufactured products, including flour, tobacco products, perfumes, cosmetics, soaps, new clothing, footwear, iron or steel sheet or plates, hardware, and motor vehicles for transport of persons. Rates between 15 and 25 per cent apply to milk and dairy products, pharmaceuticals, wool and artificial or synthetic yarns or fabrics, air-conditioning equipment, and electric refrigerators. A 10 per cent rate applies to automotive parts and accessories, nonelectric refrigerating equipment, sewing machines, and used clothing.

In addition, the former four French Equatorial African countries apply a fiscal import duty to all imports, irrespective of their country of origin. The rates range up to 40 per cent ad valorem. A few items, such as chemical fertilizers, insecticides, and wheat flour, are exempted from the duty. The rates on machinery and tools range up to 10 per cent, on textiles they are 12-15 per cent, on wines 30-40 per cent, and on most other manufactured goods between 10 and 15 per cent.

Export tariffs

The export tax on cotton, which is one of the most important export products of the region, amounts to 11 per cent ad valorem. Most other exports, such as coffee, wood, cocoa, and tobacco, are subject to export taxes of 5-12 per cent ad valorem.

Cameroon

Import tariffs

The import tariff structure of Cameroon is very similar to that of the former countries of French Equatorial Africa. In addition to the common customs duty of the Equatorial Customs Union described above, Cameroon also maintains a single fiscal import duty applied in a nondiscriminatory manner to all imports, but the rates of duty are different from those applied in the other countries of the Union. Thus, there is no import duty on imports of sugar and milk products in Cameroon, compared with a duty of 6 per cent in the other countries. Imports of wines are subject to a duty varying between 15 and 20 per cent in Cameroon, compared with 30-40 per cent in the other four countries. For most other import products, the rates of fiscal import duty are slightly higher in Cameroon than in the other countries.

Export tariffs

Export taxes on bananas, which are an important export product of Cameroon, amount to 17 per cent ad valorem. On other export products, except hides, skins, and cotton, the taxes are higher in Cameroon than in the other countries.

Madagascar

Import tariffs

Until June 1, 1961, there were only fiscal import duties levied on imports into Madagascar; these were applied to imports both from the franc area and other countries. However, from that date Madagascar also introduced customs duties applicable to imports from the non-franc area, except to imports from the EEC countries.

Fiscal import duties are very high in Madagascar, amounting to as much as 38 per cent ad valorem for some products. With few exceptions, they are almost twice those levied by the BCEAO countries. The customs duties are about the same as in the BCEAO countries, though even here the duties on textiles (35-40 per cent ad valorem) are considerably higher.

Export tariffs

The level of export taxes in Madagascar is about the same as in other CFA countries, though it is difficult to compare the average export tariff of any two areas.

IV. The Restrictive System

The exchange regulations applied in the CFA countries are patterned on those of France, with adaptations decided upon by local authorities according to local conditions and requirements. While exchange transactions with the other franc area countries generally are free, those with the non-franc area are subject to licensing. In each country there is an Exchange Office which administers the exchange control. Foreign exchange transactions are handled by commercial banks under the direction of the respective Exchange Offices. Settlements with other countries of the franc area may be made in any of the currencies of that area, while those with the non-franc area countries are made in French francs through the Paris exchange market. Except when provided otherwise, bilateral payments agreements concluded by France provide for settlements between the franc area as a whole and the other country concerned; in such cases, settlements are made in accordance with the terms of the payments agreement.

Import regulations

All the CFA countries prepare annual programs of imports from the non-franc area countries. In the past, the CFA countries were required to submit their import programs to France for approval and allocation of necessary foreign exchange (non-franc area currencies). The formal submission of such an import program to France is no longer required, but, under the various cooperation agreements, each country’s import program and its foreign exchange requirements are still discussed in the Joint Committee of French and African representatives. In these discussions, agreement is reached in the following two areas:

1. That the total imports from outside the franc area do not exceed a certain “reasonable” ceiling; and

2. That imports of certain individual products from non-franc area countries do not exceed certain maxima and/or that imports of some individual products from France do not fall below certain minima. These products include dairy products, wheat, and flour (which are in oversupply in France), beverages (other than whisky and gin), textiles, automobiles, radios, refrigerators, and air conditioners. The French insistence on a minimum of imports of these commodities from France and a maximum limit to imports from outside the franc area is a matter of commercial policy. It would seem that for some of the commodities, French export prices are higher than the prices of similar products from other countries, although the price differential has been greatly reduced since the devaluation of the French franc in 1958. These stipulations result in the CFA countries giving some quid pro quo for French preferences for some major CFA export products.

The import programs specify both the total amount of imports and the amount of imports of certain commodities. Following the establishment of the EEC, quotas are now established separately for the EEC and for other non-franc area countries, pursuant to the obligations under the Treaty of Rome, which requires that quotas for imports from the EEC countries be increased by a fixed percentage annually. Some of the CFA countries restrict some imports (e.g., textiles) from Far Eastern countries in order not to prejudice their own industrialization. Of some other commodities, such as sugar and wheat flour, some CFA countries allow imports from France only and insist that, in order to protect their own (relatively high-cost) producers, France export these products to the CFA countries at a price not below that at which the CFA producers sell in the domestic markets.

Exchange transactions of most CFA countries19 with countries outside the franc area are recorded in a statistical “drawing right account” (compte droit de tirage) maintained with the French Exchange Equalization Account. The drawing right account of each CFA country is credited and debited with its exchange receipts from and payments to the non-franc area. In most arrangements, it is stipulated that the drawing rights may be replenished, if necessary, by a further allocation from the general reserves of the franc area. For Cameroon, Mali, and Niger, however, specific ceilings on total drawings have been agreed with France (although never utilized). Should these ceilings be reached, the matter would be fully discussed in the Joint Committee. The French authorities state that France is always ready to supplement these countries’ drawing right accounts with special foreign exchange allocations. Hence, these accounts cannot be said to restrict the countries from obtaining conversion facilities as long as they possess franc assets. There is no connection between the drawing right arrangements and the agreements with France on the import program of the CFA countries. The main purpose of the drawing right accounts is to segregate each country’s operations in foreign exchange (non-franc area currencies).

Although imports from the franc area are generally free from any import restrictions, some CFA countries (e.g., Senegal) have in recent years imposed nondiscriminatory restrictions on imports from all sources, including France, of some products with a view to protecting their domestic industries.

In the recent past, especially since the devaluation of the French franc in 1958, the CFA countries have tended to grant improved access to imports from the non-franc area. In particular, they have increased their quotas for imports from the EEC countries, generally in keeping with their obligations under the Treaty of Rome. Furthermore, although detailed import programs are not readily available, it would seem that total imports allowed under the import programs have also increased gradually.

The trend toward liberalization in the CFA import regulations is also obvious from the trend in the geographical origin of imports into the CFA area. On the other hand, it is extremely difficult to isolate the effects of liberalization from all other factors that influence the distribution of imports. (For example, the devaluation of the French franc in 1958 may have resulted in an increased percentage of imports into the CFA area from France in 1959 and 1960.) Imports from the non-franc area increased by about 25 per cent between 1960 and 1961 in Dahomey, Ivory Coast, Madagascar, and Senegal; by 34 per cent in the four states of Equatorial Africa; and by 48 per cent in Togo.

Export Restrictions

All exports to countries of the franc area are free from any form of governmental control (except a few selected commodities, e.g., gold and diamonds from Senegal, and others for which the French price guarantees are limited to a fixed quota). Exports to countries outside the franc area are subject to licensing, which is intended mainly to ensure the repatriation of exchange proceeds. These licenses—except for commodities which may be in short supply in the domestic market—may be obtained freely by registered exporters. Proceeds of exports to destinations outside the franc area must be surrendered within a specified period, generally within one month of the date of their receipt.

As in other countries in the franc area, a partial export retention scheme is in effect in all CFA countries. Under this scheme, generally 10 per cent of export receipts in non-franc area currencies may be retained by exporters in nontransferable accounts, designated EFAC accounts (Exportations-Frais Accessoires). The EFAC accounts can be used only by the exporter for the needs of his own business, e.g., for the purchase of needed raw materials or equipment or for representation and advertising expenses abroad.

In certain CFA countries, directional export controls are applied (which provide an incentive to sell to countries outside the franc area). In Cameroon, for example, under a scheme of tied export licenses, called jumelage, licenses to export coffee to France are issued only to those exporters who export to countries other than France; quantities licensed for export to France are a multiple of exports to other markets.

Payments for and proceeds from invisibles

The regulations governing payments for invisibles are patterned on those of France. Even some of the recent French modifications, such as an increase in the tourist allowance to the equivalent of $700 a person, have generally been followed in the CFA countries. There are local variations, but they are relatively minor. Transfers to and from the franc area are free but, in general, all payments to countries outside the franc area require authorization from the Exchange Office. The extent to which this licensing has been delegated to the authorized banks varies from country to country. Controls over payments in respect of many categories of invisibles are of a supervisory nature, designed to ensure that other aspects of control, particularly those on capital movements, are not circumvented. Residents must collect, and surrender within a month from the date of receipt of foreign exchange, amounts due from nonresidents in respect of services, and all income exceeding CFAF 5,000 from foreign securities. Generally, payments for invisibles related to approved trade transactions are permitted freely. In most CFA countries, current income and profits of nonresidents can be fully remitted, although authorization is necessary. In Mali and certain other CFA countries, only a certain proportion of total income (40-60 per cent) may be remitted abroad, depending upon whether a person’s family lives in the country or abroad. Imports of CFA banknotes into the CFA area are generally free for both residents and nonresidents. For exports of CFA banknotes, there is a maximum of CFAF 75,000 a person, but in many places there is no enforcement of this regulation. In France, CFA francs are exchanged into French francs at parity, but the banks are officially instructed to do so only for those who prove that they have personally acquired these notes in the CFA area. However, these instructions may not have been followed effectively.

Nonresident accounts

There are two major types of nonresident account: foreign accounts in convertible francs and foreign accounts in bilateral francs. The former may be used freely for settlements with residents of countries in the area of convertibility, or for purchases of any foreign currency. The latter may be used for settlement only when the nonresident on whose behalf such settlement is made resides in the country to which the account to be used is related. Transfers from convertible accounts to bilateral accounts are permitted freely, but a transfer in the reverse direction needs authorization.

There are some other categories of nonresident (e.g., tourist) accounts, but they are of minor significance.

Capital Transactions

The regulations governing capital transfers in CFA countries are similar to those applied by France. They permit freedom of transfer to franc area countries, except that in some countries (e.g., Cameroon and Mali) there are special regulations governing capital transfers. In Mali, restrictions have formally been placed on capital movements to France, but it is not quite clear how far these restrictions have been effective.

Nonresidents are permitted to transfer abroad the proceeds from the liquidation of an investment if the investment was originally made in accordance with exchange control regulations. For residents, controls on capital transfers are much more restrictive, although certain transfers—such as those related to legacies or emigration—are permitted. Limited facilities for residents to acquire foreign assets also exist.

Le système franc CFA

Résumé

Les monnaies en circulation de certains pays et territoires actuellement ou anciennement français, portent le même nom: le franc CFA. Bien que les différents francs CFA aient le même taux de change, ils sont émis par six différentes banques centrales ou instituts d’émission, et chaque monnaie n’a cours légal que dans la zone où elle est émise. Cette étude ne traite que des francs CFA émis par (1) la Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), en circulation dans l’ancienne Afrique Occidentale Française et le Togo, (2) la Banque Centrale de l’Afrique Equatoriale et du Cameroun (BCEAEC), en circulation dans l’ancienne Afrique Equatoriale Française et le Cameroun et (3) l’Institut d’Emission Malgache (IEM), en circulation à Madagascar.

Les statuts et les opérations de ces trois banques centrales sont quelque peu différents; néanmoins, ces banques présentent plusieurs traits communs, qui sont discutés en détail. Les opérations de crédit des banques commerciales opérant dans les pays CFA dépendent largement des facilités de réescompte offertes par les banques centrales. Au cours de la période de cinq ans qui s’étend de 1957 à 1961, la masse monétaire totale dans ces pays s’est accrue d’une moyenne de 10 pour cent par an.

Les chiffres de la balance des paiements ne sont disponibles que globalement pour tous les pays membres d’une banque centrale commune. La balance des paiements pour les pays CFA pris en groupe accuse un déficit important sur le commerce et les opérations invisibles, déficit qui est plus que compensé par l’afflux de capitaux publics en provenance de la France.

Beaucoup de produits d’exportation des pays CFA, notamment le café, les arachides, l’huile d’arachide, l’huile de palme, les bananes et le coton, ont profité à divers degrés des prix de soutien, de subsides et d’un régime commercial préférentiel français, qui sont discutés en détail. En 1961, l’aide financière totale accordée sous cette forme par la France aux pays CFA a été estimée à $69 millions.

Tous les pays CFA sont associés à la Communauté Economique Européenne. Une seconde Convention d’Association a été signée en juillet 1963; elle est sujette à ratification et elle n’est pas censée entrer en vigueur avant le 1er Janvier 1964. La nouvelle Convention envisage en particulier l’élimination progressive du système de soutien des prix par la France et une diversification de la production grâce à une aide financière supplémentaire de la Communauté Economique Européenne. L’article décrit également les tarifs douaniers et les règlements de change des pays CFA.

El sistema del franco CFA

Resumen

Las monedas que circulan en ciertos países y territorios que hoy día son franceses, o que lo fueron anteriormente, llevan todas el nombre de franco CFA. Aunque los distintos francos CFA tienen el mismo tipo de cambio, son emitidos por seis diferentes bancos centrales o institutos de emisión y cada uno tiene curso legal únicamente en la zona en que se emite. Este estudio versa exclusivamente sobre los francos CFA emitidos (1) por el Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), que circulan en lo que anteriormente fue el Africa Occidental Francesa y en el Togo; (2) por el Banque Centrale de l’Afrique Equatoriale et du Cameroun (BCEAEC), que circulan en la antigua Africa Ecuatorial Francesa y en el Camerún, y (3) por el Institut d’Emission Malgache (IEM), que circulan en Madagascar.

Los estatutos y las operaciones de esos tres bancos centrales difieren un tanto entre sí; no obstante, tienen varias características comunes, las cuales se examinan aquí detenidamente. Las operaciones crediticias de los bancos comerciales que funcionan en los países de la CFA dependen en gran medida de las facilidades de redescuento ofrecidas por los bancos centrales. Durante el quinquenio 1957-61, el total del medio circulante de los países de la CFA aumentó a razón de un 10 por ciento anual como promedio.

Las estadísticas de la balanza de pagos se encuentran disponibles únicamente en forma global para todos los países participantes de un banco central común. La balanza de pagos conjunta de los países de la CFA acusa un déficit importante en cuanto al comercio y las partidas invisibles, pero dicho déficit queda más que neutralizado por la afluencia de capital oficial proveniente de Francia.

Muchas exportaciones de los países de la CFA, notablemente el café, el maní, el aceite de maní y el de palma, los bananos y el algodón, se han beneficiado en diversas formas de las garantías sobre los precios, los subsidios y el trato preferencial que Francia les otorga, asunto que este estudio examina con amplitud. Se calcula en US$69 millones el total de la ayuda financiera otorgada por Francia a los países de la CFA durante 1961.

Todos los países de la CFA están asociados a la Comunidad Económica Europea. Un segundo Convenio de Asociación se firmó en julio de 1963, sujeto a ratificación, pero no se espera que entre en vigor antes del 1 de enero de 1964. El nuevo convenio tiene particularmente en miras la eliminación gradual del sistema francés de garantía de precios y la diversificación de la producción mediante la ayuda económica adicional de la CEE. Este artículo también describe las disposiciones arancelarias y cambiarias de los países de la CFA.

*

This paper was prepared by the African Department for the information of the Board of Executive Directors of the International Monetary Fund.

1

Dahomey, Guinea, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta.

2

The Central African Republic, Chad, Congo (Brazzaville), and Gabon.

3

The name of the currency of Madagascar was changed from CFA franc to franc Malgache (Malagasy franc) effective July 1, 1963. However, this did not entail any change in the basic system as described in this paper.

4

Originally, this group also included Guinea and Mali. As far as the situation prior to 1959 is concerned, the designation “BCEAO countries” also includes Guinea. Similarly, Mali is included prior to July 1, 1962.

5

In the past, about 25 per cent of French imports of coffee has come from the non-franc area.

6

The banana market in the world is dominated by a few oligopolistic sellers. Like France, the United Kingdom and Italy also grant special preferences to imports of bananas—from the Commonwealth countries and from Somalia, respectively.

7

Other associated African countries outside the franc area are Burundi, Congo (Leopoldville), Rwanda, and Somalia.

8

Pineapples, coconuts, coffee, tea, pepper, vanilla, nutmeg, cloves, and cocoa.

9

As a further exception to the principle of reciprocity, there will be a time lag of three years for those associated countries which, because of international obligations, are not as yet in a position to assume these commitments. The countries which have claimed this exception are Congo (Leopoldville) and Togo.

10

In view of the fact that the new convention will become effective only with a considerable delay, it is possible that the original timetable may have to be reviewed.

11

The explanation lies presumably in the noncompetitive position of Somali bananas, for which Italy maintains a support price system in the Italian market.

12

Only five countries obtain nothing or very little by way of budgetary aid from the French Treasury. They are Senegal and Ivory Coast, both of which are being assisted by support prices for their export products, which are then taxed heavily; Togo, which has tended to use the reserves of its stabilization funds; Gabon, which is a relatively small country with booming export products (wood, oil, and manganese); and Mali.

13

These two figures are not strictly comparable, since some of the French aid which until 1962 was being spent directly by the French Government is now extended through the local budgets. Furthermore, the 1962 figure includes some carry-over from the previous fiscal year.

14

The former or present Dutch countries and territories were to receive $35 million, those of Belgium $30 million, and that of Italy (Somalia) $5 million.

15

Although Mali signed the Agreement, it subsequently established a central bank of its own, on July 1, 1962. Togo, which also participates in the BCEAO, did not sign the Agreement. Pending the establishment of a central bank of its own, Togo has arranged with the BCEAO that the latter will continue to function as bank of issue in Togo.

16

The new statutes originally provided for 21 members (2 from each of the seven signatory countries and 7 from France), but because of the withdrawal of Mali from the proposed Monetary Union, the number of Board members was reduced to 18.

17

The authorities of the BCEAEC explain that this is not needed, since the French Treasury is always ready to make short-term advances to governments at low rates of interest.

18

These three states have a right to opt for separate Monetary Committees, but have chosen to have a Joint Committee.

19

At present, the Central African Republic, Chad, Congo (Brazzaville), and Togo are the only countries which do not have drawing right accounts. The first such account was opened for Tunisia in 1959 when it wished to be sure that it would not accumulate inconvertible French franc balances. Since then a similar arrangement has been insisted on by those African countries which are net earners of non-franc area currencies.

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Cover IMF Staff Papers
IMF Staff Papers: Volume 10, No. 3
Author:
International Monetary Fund. Research Dept.
Volume/Issue:
Volume 1963: Issue 003
Publisher:
International Monetary Fund
ISBN:
9781451968934
ISSN:
1020-7635
Pages:
168
DOI:
https://doi.org/10.5089/9781451968934.024