How do people keep their savings in a country like Burkina Faso?
Have you ever questioned yourself if saving some money is necessary and/or possible when you are poor? Would you be able to save some money with an empty belly and an empty pocket? Have you ever navigated a situation financially where you believed that the future didn’t matter? Imagine a life of sweat and toil but where the priority is solely to get some food daily because of underemployment and other reasons. Put another way, things like clothing, accommodation, healthcare, transport, etc. considered as ‘basic’ in the modern society are not easily affordable in such context.
This may look exaggerated to some people but a big proportion of the Burkinabe population mostly in the peripheral areas of big cities are facing those challenges. For some reasons including economical, a lot of young people (girls and boys) have migrated from villages and small cities to the capitals for instance where they realized that the living conditions are sometimes worse.
My high curiosity to understand the motivations of this particular target group led me meet with some of them and exchange views. I was more interested to know how they make money, how they spend it, if they save some and what are their future plans. It was so exciting to listen their answers and to capture similarities and differences between them. I got inspired by this and I would like to share it. I will predominantly talk about socioeconomic, financial and occupational aspects. I will first make a brief history of the fiat currency (XOF) in Burkina Faso. I will then list and comment the different saving strategies either formal or informal that I learnt.
- CFA franc BCEAO: the legal tender currency in Burkina Faso
CFA means ‘franc de la Communauté financière africaine’ in french. In english, it stands for ‘franc of the French-speaking African Community’. Actually, fourteen French-speaking western and central African countries composed of two different economic zones including Burkina Faso, use it. The franc CFA was created in 1945 through a French government decree setting the exchange rate at 1 CFA franc = 1.70 FRF (FRF = French franc). Different stages of devaluations of the French franc will occur but two of them have changed the parity: first in 1948 (1CFA=2FF) secondly in 1994 when the CFA franc was devalued by 50% against the French franc, setting the new rate at 1CFA franc=0.01FRF. Since 01 January 1999, euro replaced the French franc at the rate of 6.55957 FRF for 1100 CFA franc = 0.152449 euro or 1 euro = 655.957 CFA franc.
Today, the debates around this existing ‘monetary cooperation’ are fascinating with more and more intense voices. We remember that a year ago in August 2017, a French-Beninese activist named Kémi Seba has burned a 5000 CFA franc bill in public in Dakar, as a way for him to alert youth and to protest against what he called a new form of colonialism. The well reputed Togolese economist Kako Nubukpo who formerly worked at the International organisation of la Francophonie is also known for his hostility about the CFA franc that he calls ‘servitude monétaire’ which could be translated as monetary dependence. He is wondering why we should continue to use the CFA franc since the French franc has disappeared long before. He is also questioning the sovereignty of African countries in regard to their central banks and the notes still being printed in France. With other economists such as Martial Ze Belinga or Ndongo Samba Sylla they explained that keeping the CFA franc has a negative impact for African countries as they tend to import more than they export. In other words, a fixed exchange rate with euro by valuing the CFA franc, makes it easier to buy goods abroad for African countries. But when it comes to selling their own goods, these appear to be more expensive abroad.
One would assume that the poverty headcount ratio in Burkina Faso has dropped between 1994 and now (World bank data). Some would also say that the GNI per capita has increased within the same period. But the reality is that pretty new forms of poverty and vulnerabilities appeared in Burkina Faso. Salaries in the public sector did not move proportionally with inflation rates. Some economic sectors benefited from more investments making them more productive than others. Export products like cotton prices abroad are not stable. Entrepreneurship and innovation opportunities for youth is still poor (National Expert Survey (NES), 2015). Consequently, the unemployment rate reached an all time high of 6.50% in 2014. This year coincides with the beginning of a long series of terrorist attacks undertaken against Burkina Faso which is among the most important factors of economic and financial poverty that we sadly observe nowadays.
2. The typology of young vulnerable that I met
Following the popular uprising which occurred in 2014 leading to the resignation of the former president Blaise Compaoré after 27 years of power, some demographic pressure is visible in big cities like the capital Ouagadougou. Not all those young and excited people who migrated from villages to Ouagadougou, returned to their homes. Those who decided to stay expected to find a job and to finally accomplish their dreams of urban life mistakenly considered as better.
In Ouagadougou, on top of the highest costs that people face is the rent for an accommodation. Some people even consider it as a housing crisis. It is manifested by a lack of public control on prices resulting to an increasing speculation from lands and construction materials resellers. This phenomenon occasioned a big concentration of vulnerable young people in peripheral areas where lands and rent are cheap because they are not officially prepared by municipalities. However, those areas are infamously where security, hygienic, health and housing conditions are not the best ones.
I have randomly visited three of these zones in the West and East few kilometres away from Ouagadougou. From what I learned talking with people, I was able to identify some trends in terms of socio professional, economic and financial characteristics.
All of people that I talked with are working in the ‘informal sector’, with different organisational levels.
3. The common saving techniques identified
- The formal techniques: savings account, fixed-term deposit and mobile banking
When we consider the formal ways to save money using banks or other finance institutions, there are what we call the ‘Plans’. A ‘plan’ is a ‘saving plan’ which aims to finance a specific project. It is most used by people in urban areas who have a relative regular income and/or who have an easy access to banks including distance as the main factor. We differentiate the savings account which is adapted for regular cash operations, from the fixed-term deposit. In rural areas, some people still have a pessimistic mentality about banks that they consider to be too bureaucratic which makes their savings not rapidly available when needed. For this reason, they tend to move to mobile banking which is very easy to use, secure, rapid and more transparent to users. We should also keep in mind that in a context of poverty, savings amounts are not significantly big, so everything that contributes to control cash flows and costs are worthy.
- The informal techniques: ‘Tontines’, ‘Tak raogo’
The ‘Tontine’ method is common to many African countries with small differences in the names, core principles or the functioning variables. It’s a saving plan where every subscriber makes a deposit of an agreed sum into the fund, and thereafter is paid the total of their savings on a rotary basis. So one subscriber is paid every period the total of their savings, starting with the most trustful ones to ensure that payments will continue to the end of the cycle. The common variables are: the number of subscribers (N), the total of savings (S), the lump sum of saving (s) and the saving payment period (P). When every subscriber is depositing the same lump sum, we have S=Ns. For instance, N=12 subscribers, s=10,000 XOF, we can define S=10,000x12=120,000 X0F. If participants decide that payment period is monthly, then savings are paid every month (when we have P=1 Month) and one participant will be paid 120,000 XOF every month until the turn is covered. It’s important to note that this method works better when investors trust each other. Otherwise, the payment cycle could be broken especially when some bad participants receive their savings earlier and have the temptation to leave without completing the whole cycle.
The second informal saving method that I learned from discussing with people is called in the local language Moore ‘Tak rago’. In this method, we have participants (N), a fixed amount of their individual contributions (s), the total of savings for each participant (S), the period of savings payment (P) which is the same date for everyone in opposite to the tontine method, and finally there is one ambulant collector. Everyday, the ambulant collector goes to participants workplaces to take their individual contributions. At the end of the period, every participant receives the total of their contributions which may be different for everyone as they may have contributed differently. The cost to save money in this method is that every participant must pay the collector the equivalent of their one day contribution.
In this article, my objective was to explain how people are managing to save some money and secure it in a context of poverty. I first presented the legal tender currency, the CFA franc BCEAO and the stakes of using it. This helped to understand how it could affect poverty but also savings. To illustrate this, I presented in the next point the typology of population that I met who are also among the largest groups encountered now in Burkina Faso. In the last point, I explained the common saving methods that I learnt from them.
At the end of this research, I noted that there is a significant link between saving amounts, saving methods in one hand, and the level of education, the level of poverty in another hand. To boost savings and formalise them, it’s important to educate people and help them get out of the circle of poverty.