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Fordham CIPS Research Focuses on Senegal

August 27, 2015 by Darryl McLeod

Creating manufacturing employment in Franc CFA Countries

 

Senegal Pic 1

Darryl McLeod Pic

August, 2015: Senegal and other Franc CFA countries have their own currencies, but have a long history of pegging them to the Franc(now the Euro).   Aligning their monetary policy to that of France has its benefits: fiscal transfers and aid, trade and most important remittances amounting to about 12% of GDP.   Unlike Southern Europe however, the movement of workers from CFA countries to France is difficult and dangerous.  Long distance migration has a high human cost and is politically more problematic than movement of workers within the EU.  One alternative to migration is to create more jobs in CFA countries (Benin, Burkina Faso, Guinea-Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo).  Senegal for example grew rapidly until it was hit by slower capital inflows in part due to the May 2013 shift in U.S. monetary policy (Taper Tantrum).   Overall managed exchange rate with capital inflows and remittances led to an exchange rate appreciation that has not been reversed and has reduced competitiveness , see the IMF Figures below. 

Senegal

Job growth matters because despite rapid growth over the last decade Senegalese youth have joined  MENA refugees in making the very hazardous 3000+ mile journey to Italy via Libya. A Wall Street Journal tells the story of Abrahima Ba who was doing OK in Senegal receiving $200 a month  from relatives in Paris.  Ironically these remittances and the prospect of much higher wages helped encourage him to try and join his father in Paris. Unfortunately, he may well have perished 700 other migrants in a tragic boat accident off the coast of Italy.   Ba’s story and many others like it underscores the importance of creating employment opportunities and higher wages in the Senegal and other CFA countries.

Several of us here at Fordham are very pleased to be working with a World Bank team headed by Ali Zafar analyzing various macroeconomic and industrial policy options that might increase the competitiveness in Guinea, Senegal, Benin, Togo, and Mali.  These CFA countries have natural ties to the EU region: a common language, a large Diaspora, aid and trade, Can these ties be translated into a comparative advantage in light manufactures?  This is the question explored by this four month research project.  Formal employment and productivity remain very low compared to France or Greece: even low wage jobs in Paris pay many multiples of Senegal earnings, especially in rural areas. The purpose of this research project is to find a mix of macroeconomic and industry specific policies that will increase the region’s competitiveness. In addition to entrepreneur interviews in Senegal, our group at Fordham will compute various measures of trade weighted real exchange rates.  The recent depreciation of the Euro has helped, but not with respect to large EU markets for the regions exports. If you are a student interested in working on this project please contact me at my department email ad

 

References

Devarajan, S., & Rodrik, Dani (1992). Do the Benefits of Fixed Exchange Rates Outweigh the Costs? The CFA Zone in Africa. Open Economies: Structural Adjustment and Agriculture, 66-85.

Dinh, H. T., Rawski, T. G., Zafar, Ali, Wang, L., & Mavroeidi, E. (2013). Tales from the development frontier: How China and other countries harness light manufacturing to create jobs and prosperity. World Bank Publications. http://elibrary.worldbank.org/doi/book/10.1596/978-0-8213-9988-0

IMF (2014) African Dept. Senegal: Article IV Consultation and Eighth Review Under the Policy Support Instrument-Staff Report; Press Release; and Statement by the Executive Director for Senegal.

The effects of the Euro zone crisis on the CFA franc zone: a View from Cameroon

McLeod, D. and Welch, J. (1993). The costs and benefits of fixed dollar exchange rates in Latin America. Dallas Federalr Reserve, Economic Review, 31-44.

 

 

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