# _The Devaluation and Macroeconomic Performance_

The CFA franc was devalued in January 1994 by 100 percent in domestic currency terms. The devaluation was expected to reverse the eight years of negative real GDP per capita growth. Although real GDP growth per capita declined by 1.9 percent in 1994, that was an improvement over the 3.9 percent decline in 1993. The fiscal position of the government was improved due to the substantial export tax revenues it was able to collect by not passing through the increase in export earnings (in local currency terms) due to both the devaluation and the surge in the international price of cocoa, coffee and cotton. Prior to the devaluation, cocoa and coffee farmers were receiving approximately two-thirds of the c.i.f. export price. Immediately after the devaluation, they received about one third of the c.i.f. price. These ratios were adjusted upwards in the following campaign years. The indicative cocoa producer price relative to the average export price rose to 43 percent in the 1995/96 campaign, while for coffee the ratio more than doubled, rising to 78 percent in 1995/96. Despite the fact that the ratio of the producer price to the export price declined for cocoa, the real cocoa producer price did increase, albeit not dramatically. Coffee prices, on the other hand, more than doubled in real terms.

The turnaround in the economy was more pronounced in 1995.11 Real GDP growth increased by 7 percent in 1995, implying a real growth rate per capita of 3.1 percent. Export growth increased by 9 percent, in part reflecting the more than 14 percent increase in the terms of trade in 1995. There was a major turnaround in domestic demand, which grew at 13.7 percent in 1995 compared to the 2.7 percent decline in 1994. Total investment rebounded strongly, increasing in 1995 by about 39 percent in volume, up from the 16 percent increase in 1994. Private consumption grew at 7.2 percent in 1995, in contrast to the decline of 6.7 percent observed in 1994, largely due to the decline in purchasing power following the devaluation. Growth in the primary sector was 6 percent in 1995 compared to 4 percent m 1994, due in part to the strong growth in agricultural exports, especially coffee, but especially to the expansion of the petroleum sector. Manufacturing increased by more than 10 percent in 1994, with the strong increase due in part to the coming on stream of new oil and gas fields. Capacity utilization increased from 76 percent in 1993 to an average of about 85 percent in the first three quarters of 1995. All branches of the tertiary sector registered positive growth in 1995, in contrast to 1994. The tertiary sector also registered strong growth of 10 percent, with the growth in export crops and import substitution having a positive effect on domestic transport and commerce.

# _The Impact of the Devaluation on Poverty_

This section examines the expected effects of the impact of devaluation on household real expenditures. Essentially, the two channels through which a devaluation operates on real household expenditure is through its effect on consumer prices and its effect on incomes. While a common approach to tracing the expected impact of the devaluation on real household expenditures to use a two good, tradable/nontradable model, in the case of C6te d'Ivoire, it makes more sense to consider a three good model where the tradable sector is broken down in exportables and importables.'<sup>2</sup> The distinction

## The data for 1995 are from CMte d'Ivoire (1996).

12 We follow the lead of Hinkle and Nsengiyumva (1995b) in their discussion of the three good model and its relation to various measures of the intemal exchange rate by referring to the three sectors as importables, exportables, and nontradables. In practice, as they point out, when intemal exchange rate measures are calculated, data limitations often force one to use indices for import, export, and domestic production in calculating the relevant price indices.

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