I’m in Cairo today, and for those not familiar with the ecosystem, you can read a few of our thoughts on Egypt’s here.

Don’t miss our deep dive at the end of the brief on the fiscal legacy of France. 

And join us in Lagos next week. We are hosting a webinar on “Nigeria’s Startup Scene: How Does it Stack Up?” June 19th, 12:30 PM Eastern. Register here. 

Let’s get right into it this week! 

TL;DR

• Ethiopia - Raises 2025 budget by 21%, relying on borrowing amid IMF reform talks. (Bloomberg)

• Kenya - Is third in the world behind Mexico and Peru in global avocado exports. (Economist)

• Nigeria - Tinubu's first year sees reforms amid ongoing economic challenges (Premium Times); Diageo sells Guinness Nigeria stake. (FT)

• Rwanda - Raises €200M for green initiatives with AfDB support. (Further Africa)

• Senegal - Begins offshore oil production with Sangomar project. (Reuters)

• South Africa - ANC and DA close to forming coalition government (Bloomberg); Rand strengthens amid coalition government talks. (Reuters)

• U.S. - Confronts reality, counterterrorism efforts in West Africa ineffective since 9/11. (NYT)

Graphic of the Week 

Wait, What? France Controls 14 Currencies?

Fiscal Legacy of France - Pegged to the euro, the CFA Franc, created by France in 1945 to stabilize its African colonies' economies, remains in use in 14 countries in West and Central Africa. Despite its benefits of economic stability, low inflation and facilitated trade, it faces criticism for limiting monetary sovereignty. The French Treasury guarantees convertibility and controls monetary policy, while member countries must deposit foreign reserves with France. Reforms, including the introduction of the ECO currency, have been proposed but not implemented, highlighting ongoing debates about the currency's impact on African economic development. Read a deeper dive on this topic below and plan to continue comparing things like inflation in CFA and non-CFA countries in coming issues. 

Business & Finance in Africa 

Kenya's Avocado Boom - Kenya is rapidly rising as a top global avocado exporter, now third behind Mexico and Peru. Favorable climate, efficient farming, and low labor costs boost its market presence and last year, avocados accounted for 17% of the country’s horticulture export. 

Senegal’s Black Gold - The country is now a player in the global oil and gas market, launching production from its first offshore oilfield, the Sangomar project, on June 11th, 2024. This significant milestone, led by Woodside Energy, is set to boost the nation's economy considerably. The Sangomar field, located about 50 nautical miles south of Dakar, has the capacity to process 100,000 barrels of crude oil per day. With this development, Senegal is expected to generate substantial revenue streams, projected at $1.4B over the next two years.

Rand Surges on Unity Talks - The South African Rand is fairly strong amid ongoing discussions by the African National Congress (ANC) to form a coalition government of national unity after the May 29 election left them 10% shy of their needed majority. The Rand strengthened to 18.6450 against the dollar, a 0.44% increase, demonstrating a positive market response to the unity talks. This development has heightened investor interest, with many keeping a close watch on the evolving political landscape and its implications for economic stability in South Africa​.

Diageo Dumps Nigeria Stake - The beer company is selling its 58% stake in Guinness Nigeria  to Singaporean conglomerate Tolaram for approximately $70M. This move follows a trend of Western companies, including Unilever, GSK, and PZ Cussons, retreating from Nigeria due to a severe currency crisis and economic downturn. Importantly, some CEOs and business executives argue that the recent flight of businesses from Nigeria won't last, because how can you ignore a growing country of over 200 million people?

Rwanda Secures Green Finance - The African Development Bank (AfDB) and Rwanda signed a partial credit guarantee agreement to support Rwanda's green and social initiatives, enabling the country to raise up to €200M from international banks. This agreement is part of the AfDB's Ten-Year Strategy (2024-33) to promote inclusive green growth. The guarantee has already facilitated a $200M loan from JP Morgan, reflecting Rwanda's commitment to sustainable financing and enhancing its credibility in international financial markets.

Risky Budget Boost  - Ethiopia will increase its 2025 budget by 21%, planning to spend 971.2 billion birr ($16.9 billion) despite recently defaulting on a eurobond payment. Finance Minister Ahmed Shide announced that the fiscal deficit will remain at 2.1% of GDP. The budget shortfall will be addressed through local and foreign borrowing, with significant reliance on domestic markets until substantial external support is secured. Ethiopia is negotiating an IMF program to alleviate pressure on local banks and secure debt relief, although political developments and foreign-exchange reform challenges make the timeline uncertain. The Horn of Africa economy is projected to grow by 8.4% in the coming fiscal year.

Democracy in Africa

ANC and DA Near Power Deal - South Africa’s African National Congress (ANC) and the Democratic Alliance (DA) are close to forming a coalition government after the ANC lost its parliamentary majority in the May 29 election. According to Bloomberg, this alliance is expected to reelect Cyril Ramaphosa as president, boosting market confidence due to the DA's business-friendly stance. Final negotiations are ongoing, with a parliamentary vote scheduled for today. The DA insists on a written agreement, and the coalition’s structure, including cabinet positions, will likely be finalized after the vote. The Economic Freedom Fighters may try to field its own candidate, but the ANC-DA majority likely ensures Ramaphosa's reelection. A coalition including the the DA is viewed as positive for business. And Zuma’s attempt to discredit the election was dismissed by the court. Let’s see what the coming hours bring!

From Joburg This Morning…Big Day Expected in South Africa

We checked in a few minutes ago with economist and election expert Colin Coleman, former partner at Goldman Sachs and adjunct professor at Columbia Business School. He said:

“The cake is not yet fully baked, as the parliament sits to elect the president this morning, but what is clear is that the ANC is proceeding with a government of national unity (GNU) as a model to bring stability and manage the complex dynamics of the South African society going forward. This likely means Ramaphosa will be re-elected as president, whilst the GNU will be led by the ANC, and the Democratic Alliance (DA) at the centre, and be joined by other parties. Those outside the GNU may over time find common cause to challenge the GNU, and we’ve already seen them attempt to label the president as the DA’s and Oppenheimer's puppet. On the market side, the Rand has been stable, so once the dust settles and the details of the agreements and cabinet are known, the market is likely to rally. If it falls apart for any reason the downside is considerable."

Peace & Security in Africa 

Malawian VP Killed in Plane Crash - Vice President Saulos Chilima of Malawi and nine others died in a plane crash reportedly caused by bad weather. The plane went missing on Monday, and the wreckage was found in a dense forest, with no survivors. Chilima, 51, was expected to run for president in 2025. The crash involved a Malawian military aircraft, which disappeared from radar due to poor visibility shortly after takeoff. Chilima, who served as vice president twice and formed his own party, is survived by his wife and two children.

U.S. in Africa 

U.S. Counterterrorism Failure - A New York Times article this week, summarizes what some see as the failed U.S. counterterrorism efforts in West Africa since 9/11. The U.S. has spent hundreds of millions and yet extremist groups have increased and multiple successful military coups have ousted civilian governments. The U.S. is currently withdrawing troops from Niger and while vocalizing the need to shift to a strategy that integrates security, governance and development across the region. And yet, the efforts under the Global Fragility Act, finalized in 2023, already face significant challenges. In West Africa, the Act covers: Benin, Côte d’Ivoire, Ghana, Guinea and Togo. 

Exploration in Africa

 “Romance, History and Good Food”

Discover the Lesser-Known Congo - This is a worthy long read: The Economic & Geopolitical History of Congo-Brazzaville (15 minutes). No spoiler from me on this one. As my colleague Nic Malanga says about his birth country: “It's a place of romance, history and good food that is hoping to move beyond its issues of exploitation, imperialism and oppression.” I’m looking for a reason to visit soon! 

Hard Times in Nigeria

Tinubu's Mixed Economic Year - I’m headed to Lagos next week and have been looking for a measured analysis on Nigeria’s tenuous economic situation. My colleague Chukwudi Ofili, our Africa legal director in Lagos found this one I recommend (10 minute read). My summary: President Bola Tinubu inherited a mess, and he’s been doing what many economists say are the right things to untangle things, but the country is still far from economic stability. In his first year, he made some drastic changes including cutting subsidies and seeking alternatives to borrowing, such as attracting foreign investments and expanding tax revenue. He’s also unified exchange rates to attract foreign investors. Despite these efforts, inflation remains high, driven by food, energy and transportation costs. The naira experienced significant devaluation, impacting businesses reliant on imports. The stock market, has shown some positive reactions to reform announcements, yielding strong returns driven by pension funds and institutional investors. The New York Times presented us this week with the painful, human side of Nigeria’s situation. 

Deep Dive on Africa

West & Central Africa’s Currency Conundrum

Let’s go a little deeper on the CFA Franc. Andrew Larsen has pieced together the history, implications, benefits and critiques of France’s management and of the currencies of 14 African countries. We plan to come to you with more related analysis in the coming months. 

History:

• In December 1945, following the end of World War II, General Charles de Gaulle created the CFA Franc as part of France's effort to stabilize the economies of its colonies and facilitate trade. At the time, the currency was pegged to the French franc.

• The term "CFA" originally stood for "Colonies françaises d'Afrique" (French Colonies in Africa), which underscores its controversial nature. After independence, it was redefined to mean "Communauté financière africaine" (African Financial Community) for West Africa and "Coopération financière en Afrique centrale" (Financial Cooperation in Central Africa) for Central Africa.

• Despite independence movements in the second half of the 20th century, countries throughout west and central Africa continued to use the CFA franc. The continuity was part of broader economic and political agreements between France and its former colonies. However, many countries left the franc zone post-independence. These included Tunisia (1958), Morocco (1960), Guinea (1959), Algeria (1964), Madagascar and Mauritania (1973). Guinea-Conakry set up its own currency and central bank in 1960. The different growth trajectories of these groups, those that stayed in the franc monetary zone and those that did not, presents an opportunity for further analysis.

• The monetary unions (West African Economic and Monetary Union, WAEMU, and the Economic and Monetary Community of Central Africa, CEMAC) were established in the 1960s to manage the currencies.

Read More: African Business

Implications:

• Pegging to the Euro: Originally pegged to the French franc, now both the Central African CFA franc (XAF) and the West African CFA franc (XOF) are pegged to the euro at a fixed exchange rate of 1 euro = 655.957 CFA francs. This stability helps mitigate currency risks and facilitates economic cooperation among the member nations​ (SuperMoney)​.  

• Guarantee of Unlimited Convertibility: The French Treasury guarantees the unlimited convertibility of the CFA franc. This means that the French Treasury ensures the CFA franc can be exchanged into euros and other major currencies at the fixed rate, which can make international trade​ easier (Brookings)​​ (SuperMoney)​.

• Centralization of Foreign Exchange Reserves: Both the Central Bank of West African States (BCEAO) and the Bank of Central African States (BEAC) are required to deposit at least 50% of their foreign exchange reserves with the French Treasury. This policy was scheduled to be abolished with the rollout of the new ECO currency designed to replace the XAF. However, to date planned reforms are yet to be implemented. (SuperMoney)​​(BCEAO)​(Reuters)(Africa News).

• Foreign Exchange Cover for Sight Liabilities: Both central banks must maintain foreign exchange cover of at least 20% for “sight liabilities,” which ensures sufficient liquidity and financial stability within the currency zones​ (Brookings)​.

• Lending Ceiling for Governments: Each government within the CFA franc zone is limited to a lending ceiling of 20% of that country’s revenue from the previous year. This rule aims to prevent excessive borrowing and maintain fiscal discipline​ (Brookings)​.

Benefits:

• Economic Stability: The CFA franc has historically provided lower inflation and more stable economic conditions compared to non-CFA countries on the continent. This stability has been beneficial for long-term planning and investment.

• Currency Convertibility: The guaranteed convertibility of the CFA franc to the euro reduces the risk for foreign investors and importers/exporters, facilitating investment and economic integration with European markets.

• Trade Facilitation: A fixed exchange rate with the euro has helped stabilize domestic prices and reduce uncertainty in trade transactions, making it easier for CFA countries to engage in international trade. Interestingly, however, little intra-African trade occurs within the Franc zone, especially in central Africa. Most franc zone countries export a small selection of commodities including cocoa, cotton and coffee.

• Inflation Control: The strict monetary policies tied to the CFA franc have helped maintain low inflation rates in member countries, which is critical for economic stability.

Critiques:

• Limited Monetary Sovereignty and French Veto Power: France possesses a de facto veto on the boards of the two central banks within the CFA franc zone, limiting independent decision-making. Many argue this undermines the African nations’ sovereignty.

• Monetary Policy Control: Since 2010 reforms of the Central Bank of West African States (BCEAO), a monetary policy committee that includes a voting French representative controls monetary policy, while the president of the West African Economic and Monetary Union (WAEMU) Commission only has an advisory role.

• Dependence on France and the Euro Limits Development: The fixed exchange rate between the CFA franc and the euro means that the monetary and exchange rate policies of the franc zone nations are determined by the European Central Bank, which follows anti-inflation policies that can hinder growth and industrialization. Additionally, any monetary policy decisions or economic shocks in Europe reverberate in Western and Central Africa where economies are much less resilient.

• Mandatory Deposits in French Banks: Countries within the CFA franc zone must deposit at least 50% of their foreign exchange reserves with the French Treasury, which limit the African countries’ ability to develop their own banking industries.

Read More: Brookings

More soon! 

P.S. Reach out if you have ideas or feedback ([email protected]) or want to chat about Cairo. Thanks for digging in on the CFA franc, Andrew Larsen. Josh Parker Allen helped out again from Oxford. This is Laura Davis, signing off from Cairo. See you next week from Lagos, Nigeria.

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