CFA macroeconomic stability does not attract foreign direct investment
Evidence
According to the supporters of the CFA franc, the franc zone offers a context of ‘macroeconomic stability’ characterised by a fixed exchange rate, low inflation and relative budgetary discipline. This is said to favour the inflow of foreign investment. This statement, however, is a myth, just like the others. The statistics of the United Nations Conference on Trade and Development (UNCTAD) on foreign direct investment (FDI) prove this. They show that FDI in Africa is captured by the countries with the highest GDP and the highest amount of hydrocarbons and mineral resources. In 2016, South Africa, Egypt, Nigeria, Morocco and Angola received over 50 per cent of the FDI stock absorbed by Africa. The CEMAC accounted for only 7.1 per cent of this stock in 2016, while then WAEMU’s share was a meagre 3 per cent. Only three countries of the franc zone were among the top 20 in Africa: Congo (10th), Equatorial Guinea (17th) and the Ivory Coast (20th). Ghana, whose currency, the cedi, is considered less stable than the CFA franc, nevertheless records a stock of inward FDI higher than that of all the WAEMU countries combined. Even more surprising is the fact that, in terms of stock of inward FDI, Congo is the only country in the franc zone to be more ‘attractive’ than the Democratic Republic of the Congo. All this shows that foreign investors are motivated by considerations other than those proclaimed by the enthusiasts of the CFA franc. Ironically, the franc zone is not even the first destination of French FDI in Africa. In 2012, these stood at just under $58 billion (3.7 per cent of the total French FDI stock in the world), of which 60 per cent went to four countries that are not part of the franc zone: Morocco, Angola, Nigeria and Egypt. — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 290
Categorization
- SEED: Data point for an article: the ‘macroeconomic stability attracts FDI’ legend disproven by UNCTAD numbers, with Ghana’s unstable cedi beating all WAEMU combined.
- XREF: connects to: The CFA system only works while franc-zone economies stay small