Ivory Coast-Interest and Investment Policies

Ivoirian investment policies reflected the dominant position in the local economy of expatriate capital and management. For example, in the early 1970s Ivoirian rates of interest were considerably lower than those in European countries, thus encouraging foreign enterprises to borrow as much money as possible in Côte d'Ivoire and to keep their liquid funds abroad. At one time during this period, an estimated 70 percent of the credits extended by the Ivoirian banking system went to foreign-owned companies. With little domestic capital to draw on, the government was forced to borrow--mostly from abroad--to finance domestic programs. To stem the outflow of capital (without offending foreign interests), the government initiated a series of banking reforms that set limits on the balances that commercial banks could have in foreign exchange and increased interest rates to the level prevailing abroad. The measure also compelled foreign-owned enterprises to import foreign capital and to retain a larger portion of their profits for local investment.

There were few incentives to encourage the average Ivoirian or small-scale entrepreneur to save. Before 1973, deposits of less than CFA F200,000 (US$800) earned no interest at all, and large deposits earned interest well below rates in Europe. In January of that year, small deposits began to earn 2.5 percent a year; this rate was raised to 3.25 percent two years later. As a result, demand deposits, which increased by 16 percent from 1962 to 1972, rose 19 percent between 1973 and 1975. But by 1985, these highly mobile accounts were costing more to manage than they were worth to the banks, so the BCEAO suspended interest payments for two years.

Regulations governing credit allocations also discouraged local investment. Banks preferred high liquidity, which meant that shortand medium-term loans (those with a payback period of between one and five years) were granted only against short and medium-term funds, effectively barring loans to local businesses, which lacked the funds. Thus, prior to new BCEAO regulations in 1975, the majority of short- and medium-term credit went to foreigners.

Before 1975 and even afterward, instead of relying on commercial banks, small-scale farmers and businesspeople relied on an informal parallel banking sector, the activities of which were not included in official statistics. The brokers who collected cash crops for export provided loans and sometimes imported goods for local farmers at what amounted to usurious interest rates. As much as half the country's savings may have circulated in the parallel banking system.

Efforts were made to rationalize the parallel system and exploit the accumulated savings. In 1968 the government established the National Agricultural Development Bank, a parastatal that helped small farmers who otherwise could obtain credit only from commodity brokers in the parallel system. (In fact, many loans--and certainly its largest loans--went to wealthy agroindustrialists and commodity exporters.) In 1975 the government set up the National Savings and Loan Bank to fund long-term mortgages from local savings.

Data as of November 1988