How unpaid bills could unseat Laurent Gbagbo

The stand-off in Côte d’Ivoire between rival presidents drags on – but the Central Bank of West Afri

In Abidjan, Côte d'Ivoire, the people are preparing for civil war. Alassane Ouattara - declared victor of the disputed 28 November elections by UN observers and recognised as president by the international community - is holed up in the city's exclusive Golf Hotel behind a barricade of peacekeepers. As many as 250 people have died on the streets of Abidjan, where Laurent Gbagbo maintains an unsteady grip on power through his control of the army and the fana­tical Young Patriot movement. Although the Kenyan prime minister, Raila Odinga, has been attempting to broker peace, those close to the situation believe that it is only a matter of time before Gbagbo pushes his security troops into direct confrontation with Ouattara and the UN.

Gbagbo's military superiority is beyond question. It is, instead, through financial means that Ouattara is most likely to be able to overthrow the dictatorship. International pressure on Gbagbo has turned its attention to his fin­ancial affairs, with particular focus on the Central Bank of West African States (BCEAO), based in Dakar, Senegal. This relic of French colonial rule seems, at last, to be bowing to the demands of its member states to cut ties with his government.

On 23 December, BCEAO "noted" worldwide recognition of Ouattara as the legitimate president but it is yet to freeze Gbagbo's access to the country's account, which holds reserves of $3bn. Though he paid only CFA35bn francs of the CFA80bn ($160m) government wage bill for December, Gbagbo did pay the army in full, reportedly with money withdrawn at gunpoint from BCEAO's Abidjan branch.

Bond villain

BCEAO is the central bank of Uémoa, or the West African Economic and Monetary Union, largely made up of the former French West African colonies. These countries use the CFA franc, a common currency introduced by France after the Second World War. When France ratified the Bretton Woods Agreement - which pegged its currency to the US dollar - the French franc suffered a sharp devaluation. René Pleven, the then French finance minister, announced the establishment of the CFA franc, which would not be devalued, to ensure that France's "faraway daughters" would not feel "the consequences of her own poverty". The currency continues to be guaranteed by the French national treasury.

Now, Gbagbo is relying on the governor of BCEAO, Philippe Henri Dacoury-Tabley - regarded by many as an ally of the dictator - to maintain access to Côte d'Ivoire's significant reserves. One tragedy of the most recent crisis in Côte d'Ivoire (whose last civil war erupted in 2002) is that the country was fast becoming an economic success story. GDP growth in 2009 was a respectable 3.8 per cent, with pre-crisis forecasts of 4-5 per cent increases in 2011-2012. The IMF had brokered debt relief on $3bn of the country's $12.8bn of external debt, predicated on fair elections. The country is already the world's largest exporter of cocoa. Last year, several major oilfields were discovered off its coastline. These could produce as much income as Ivorians' other major export.

Amid the election turmoil, Côte d'Ivoire failed to meet an interest payment on its $2.3bn eurobond which was due on 31 December, raising the prospect of a second Ivorian debt default in 11 years. On 7 January, a spokesman for Gbagbo said: "If the Europeans don't recognise President Gbagbo, then it is not to him they should be sending their bills." The bonds fell to 37 per cent of face value on the back of the missed payment, even though the country is not yet technically in default. Gbagbo is likely to pay the $29m interest before the end of January, when the grace period expires, given the punitive financial consequences of a formal default.

One option that Gbagbo has been considering is to pull out of the CFA franc and Uémoa. By establishing a new currency, the Monnaie Ivoirienne de la Résistance, he could circumvent BCEAO and try to create a state that, like Robert Mugabe's Zimbabwe, is defined by its opposition to its past colonial occupiers.

Rules of the game

I spoke to Ollie Benham, a banker with experience of doing business in Africa. He had just returned from advising a merchant bank in Harare on mergers and acquisitions and drew parallels between Côte d'Ivoire and the process by which Zimbabwe is gradually moving towards democracy and economic stability. Benham feels that the turning point for Zimbabwe came in 2008, when currency inflation rose well above one million per cent and people began to use Zimbabwean banknotes as firelighters.

“The sanctions against Mugabe didn't work. But the collapse of the currency - the fact that people weren't getting paid - changed things. Zimbabwe isn't yet democratic but it's a damn sight closer than it was five years ago." Benham believes Gbagbo can be forced to go, but only if BCEAO applies aggressive financial pressure, cutting off his access to funds. "When the army stops being paid, Gbagbo will be forced out."

When, as seems likely, Ouattara takes power, he should still consider breaking from the CFA franc. Economic independence would allow Africa's tenth-largest economy the flexibility to capitalise on its position as the most dynamic of the francophone African states. Zimbabwe's isolation from its neighbours and from Britain has led to new trading ties with China, Russia and Israel.

“Doing business in Africa has never been pretty," Benham says. "The Chinese, in particular, understand the rules of the game and are flourishing there. It would make sense for Côte d'Ivoire to embrace this influx of foreign capital." The country could use its political crisis to drive an economic overhaul. So let's hope that the financial squeeze forces Gbagbo out before any more blood is spilled in Abidjan.

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