« The CFA  franc is  a killer!»

 “Rapport Cyclope 2009”  is a reference document on world markets and commodities.  It was published on May 12th  and highlights  the agonies of various economic sectors in the franc zone, which  are suffering  under the impact of India and, in particular, the status of the CFA currency.  The situation of other African countries, notably Zimbabwe,  is not comparable, according to  Gérald Estur, co-author of the report.

Interview with Gérald Estur  by Newspaper “LES AFRIQUES” (LA)

LA:  The crisis appears to ring the death toll for the cotton trade in French-speaking Africa.  What is your view on this ?

Gérald Estur (GE) : There was a glimmer of hope for  African cotton at one stage,  at the beginning of last year, when the world price, « doped » by speculation, suddenly took off.  But hopes were quickly extinguished.  For the first time since three or four planting seasons back, there were  expectations of a return to a break-even and of a profit for producers, which would have allowed them to buy inputs.  But this hope swiftly vanished, three or four months later. Prices again dropped  to their levels of two years before, when the cotton sector was  struggling for survival from  2004 to 2007.  Now we are again on a downhill ride,  with considerable accumulated debt.

Much of the blame has been laid on the American subsidies. But American production is losing a million ton every year … the real culprit behind all this is the CFA franc.

All sectors of the economy, or nearly all, are losing out: they have been refinanced by the Government. Even  the  prosperous ones  are having a hard time.

The American subsidies have been the target of much of the blame.  This view is still often being expressed in Africa. But one must  look at things with a sense of perspective. It is not the American production that is the key factor here.  I  would be inclined to say that the culprit is India, not the United States. The American production loses one million ton every year … But the real vilain  in all this is the CFA currency.  The CFA franc is a killer !”

LA: So there are two  culprits, the CFA franc and India?

GE: The CFA franc has remained pegged to the Euro – we missed our chance by not joining  the others, when they converted to the Euro – and then the Euro took off!  Of course, when you are in a group of countries, some benefit from the situation more than others. But in this case countries with a strong CFA franc were clearly favoured, especially some import traders and certain members of the elite, who send their children to study abroad. If the exchange rate had remained around 600 francs to the dollar, we would not have had to talk about a deficit every year. But now there are these deficits. In Mali it has reached nearly 200 billion CFA francs.

All the cotton companies in the franc zone have practically gone bankrupt. And  the vicious circle moves on:   It is not possible to pay producers a price that gives them a profit.  Neither can one explain to a cotton farmer that if he gets 150 CFA francs per kg today,  in terms of purchasing power he will be able to buy more Chinese motorcycles today than he could in 2002. 150 CFA francs now corresponds to at least 220 CFA francs or more at the time.  But this logic  is obviously lost on him !

Unfortunately, as the price of inputs has gone up, the result is a see-saw effect. The companies themselves are in difficulty, therefore they only pay when under threat or they do not pay at all. When  an offer  of 200 CFA francs /kg cotton is announced, as was the case in Mali last year, people will not have grown any cotton, because they had not even received payment of the 160 francs/kg  for the previous harvest. In Togo farmers went unpaid for two years: therefore there is a general distrust of the sector. This has been the case in nearly all countries of the sub-continent, perhaps with the exception of Burkina.

LA: In other African countries cotton farmers outside the CFA currency zone in particular in East Africa, the situation is much better …

GE: They do not have the CFA franc! We have often seen the Africans of the franc zone get up in international discussions and say: this is because of the subsidies, the prices crash, etc. But their East African colleagues do not understand, because the exchange rate is 60 cents, whereas it was 5O cents before … So there is the effect of the exchange rate,  of the CFA!

LA: How do the other cotton-producing countries, outside the CFA zone, withstand the present crisis?

GE: There are difficulties there as well,  because  prices fell between July and November, but these difficulties are not of the same proportions as those of the cotton companies operating in the CFA zone. In particular, they do not have an accumulated debt. The crisis is an opportunity to eliminate the marginal ones, those which  turned up just to try their luck. Now we are left with the more serious ones. 

LA:  Faced with the position of India, what is the outlook at the end of the year?

GE: India has compressed output quite a lot:  with 1.5 million ton it has been the second largest exporter in the world and it keeps that position, although now with less than 1 million ton.  However, this will turn around again, because there is more and more state intervention, notably in India. Even if the sector is entirely liberalised, the Government offers support in the form of a guaranteed minimum  price of 225 CFA francs. This may seem quite high, but it must be remembered that the major cotton customer, even though India is an important exporter, is the home market.  The Government has bought a large part of the cotton and it is still in its hands. Therefore, as will be seen when scores of subsidies are compared country by country, the amounts for India will be rather high.

It is quite obvious that  Africa’s big competitor is India. Not only has Africa lost its markets to India,  it has also become a competitor. New market patterns have emerged,  at times only for reasons of geographical convenience: It costs less to deliver to the Chinese markets (for India). In 2002/2003 India imported 500 000 ton cotton, of which a large part came from Africa. Now this is almost down to zero, whilst India sends 1.5 million ton to markets in China.

Paris, June 2009

Newspaper LES AFRIQUES

Reported by  Bénédicte Châtel