1.
INTRODUCTION
In developing countries, exchange rate devaluation often takes place in conjunction with
broad trade and fiscal reforms, the objective being to correct macroeconomic imbalances,
improve competitiveness, reduce anti-export biases and strengthen fiscal systems.
CFA countries provide a natural experiment in this regard. The devaluation of the CFA
franc in January 1994 was followed by commercial and fiscal reforms in most countries. There
has been considerable controversy in the literature as to the effects of such reforms
(Guillaumont and Guillaumont, 1995, Devarajan 1996 for the CFA; Winters, 2000 for a more
general assessment). We examine here their effects on the manufacturing sector in two small
CFA economies, Gabon and Chad. Despite presenting radically different levels of per capita
GNP ($6480 in Gabon and $978 in Chad in 1997), these countries have a number of common
features which are typical of other small backward economies, as evidenced by the weakness of
their manufacturing sector, its dependence on the initial transformation of natural resources and
on imported inputs and the inward orientation of most of its firms.
To assess the impact, of the devaluation and concomitant trade and fiscal reforms this
paper relies on detailed firm-level data spanning the period 1993-1996 for a sample of industrial
enterprises in Chad and Gabon. The main finding is that while firms’ response to changing
incentives was non-negligible, with a marked shift of output from non tradable to tradable and an
increase in productivity, the reform process was unable to generate a virtuous and self-
sustained circle, where export expansion brings a generalized productivity increase which in turn
feeds on further export growth. Indeed, we find no evidence of a positive direct link between
export orientation and productivity growth. Productivity growth for exporters was merely due to
scale effects rather than export orientation. Because they were exposed to a positive price shock
exporters could grow more rapidly. As for non-exporting firms, input costs increased markedly,