TCX which intervenes regularly on the cover of the exchange operations of West Africa, in particular the UEMOA zone, also gives us the dispassionate point of view on the Franc CFA and the advantage which its stability gives compared to the euro to African economies. Focus.

“The XOF and the development of the capital market in WAEMU
As a prelude to the J-CAP “Investing for Growth” conference to be held on February 10 and 11 in Abidjan, TCX shares here the experience it has acquired over the past ten years in supporting foreign investments. in WAEMU. During this period, TCX supported nearly 250 investments for a value of 233.2 billion XOF (355 million euros). Of this amount, TCX “sold” XOF 43 billion (€65 million) of currency risk to foreign investors through hedges and local currency bonds issued by its “AAA” shareholders.

We note that having a common currency, linked to the euro, as well as a common central bank, has brought member countries
WAEMU has significant advantages: stability, low inflation and lower interest rates than those of other regions.

A common currency pegged to the euro also creates significant opportunities for trade and foreign investment. In comparison with other monetary areas, it would seem that these possibilities are not fully exploited. If we focus on foreign investments, we see that international investors are mainly interested in hard currency bonds and that they mainly grant loans in hard currencies, thus transferring the exchange rate risk to the beneficiary company of the investment.

Local government bonds in XOF yield 5-6%, representing a premium to the euro curve, but the share of foreign investors in the local fixed income market remains limited. We suspect that foreign investors feel that the difference between EUR bonds and XOF bonds does not sufficiently reward them for the additional costs (taxes, gap between supply and demand) and additional risks (convertibility, depeg ). This makes the XOF peg a political reality as much as an economic uncertainty.

In the offshore market, there are few options for currency risk protection, both in terms of potential volume and tenors. Onshore hedging is even more difficult, as hedging the EUR/XOF risk requires financial institutions to have free access to borrowing and lending in EUR to offset forward currency risk, which is not possible given the capital controls in place. These controls result in downward pressure on foreign lending, as demand is inhibited.

As for TCX, we advise foreign investors and local borrowers to operate in the currency of the investee company in order to reduce exchange rate mismatches, create a more stable and sustainable financial environment. and to contribute to the development of the local capital market. Ultimately, borrowers should be able to focus on growing their business, creating jobs and not be distracted by the risk of being exposed to volatility in international currency markets. A risk they cannot handle but which can keep them awake at night.”

About

TCX, a fund that offers currency swaps
TCX is a global development finance investment fund that offers long-term currency swaps and futures in more than 80 financial markets, where these products are not available or not easily accessible. The Fund started its operations in 2007 and has since provided hedging instruments for a total volume of more than 7 billion USD, spread over more than 3,000 transactions. Today, the fund has a total exposure of nearly 4.5 billion USD across 55 “Frontier” market currencies. By “selling” this exposure, it creates markets and gives “Frontier” countries access to the international capital market. The bottom