The CFAF Devaluation, Naira Parallel Exchange Rate and Niger's Competitiveness

Ousmane Samba Mamadou

Journal of African Economies, 1997, vol. 6, issue 1, 85-111

Abstract: Niger's competitiveness with Nigeria decreased significantly during the last decade, and the recent CFAF devaluation did not actually result in a sustained real and nominal depreciation of this currency versus the naira in the parallel market. To understand this behavior of the naira/CFA exchange rate, this article builds upon a simple model of arbitrage taking into account two main motives for foreign currency demand by Nigerians (dollar and CFAF): the international trade-via-transit motive and the capital transfer motive. Econometric results from vector error correction model estimates show that the CFAF and the dollar are viewed by Nigerians as very close substitutes, and that this continued even in the aftermath of the August 1993 decision to limit CFAF convertibility and the January 1994 devaluation. Such results, which seem to reflect the substantial role played by the demand for transit import by Nigerians via such CFA countries as Niger, are also used to explain the continuous decline in Niger's competitiveness with regards to Nigeria in terms of locally produced goods. Copyright 1997 by Oxford University Press.

Date: 1997
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