FOREX
“The value of the CFA Franc had been widely criticized as being too high, which many economists believe favours the urban elite of the African countries. They can buy manufactured goods cheaply, while farmers have difficulty exporting their produce. In an attempt to reduce these imbalances, the CFA Franc was devalued on January 12, 1994: from 50 CFA Francs for 1 French Franc to 100 CFA Francs for 1 French Franc. The Comorian Franc was also tied to the French Franc, but was devalued less that day: from 50 Comorian Francs for 1 French Franc to 75 Comorian Francs for 1 French Franc. 5.79 French Francs were at that time equivalent to 1 US Dollar. The whole deal was kept a secret; anyone who had advance knowledge of the devaluation would have been in a position to profit handsomely. Let me know if I’ve lost you. This is not easy stuff.
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“All products imported from France, like cars and refrigerators were significantly more expensive virtually overnight. Comorian importers of foreign manufactured goods saw a drastic decline in their business. But African exports became more competitive in France. A Frenchman, who would have otherwise paid 2 French Francs for a bushel of vanilla cloves before the devaluation, paid only 1.33 French Francs after the devaluation. The lower price may spur more demand for the product and allow the farmer to charge a little more; e.g. 100 Comorian Francs for a bushel of vanilla before, 110 Comorian Francs after devaluation. This new slightly higher price in Comorian Francs still represents a bargain for the Frenchman. But the increased demand and slightly increased price would be a boon to the farmer.
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“Gnafron had a cousin, now in prison, who was working for the Ministry of Finance and who tipped him off about upcoming devaluation. This cousin probably came up the plan to profit from this insider information, since Gnafron was no financial genius. Here is what he did.
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“First, Gnafron set up a French company owned and controlled by him with the sole purpose of buying fresh cut ylang-ylang flowers, the most valuable export crop in the Comoros. Distilled ylang-ylang essence is a major component of Chanel No. 5.
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“Second, he secured from the BCC, Banque Centrale des Comores, a letter of credit for 2 billion Comorian Francs. They drafted the letter of credit with the collateral being the ylang-ylang. The bank is in the business of facilitating commercial transactions for Comorian companies and cooperatives but is not in the business of saying no to the shadow governor of the Comoros.
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“Third, he purchased in December of 1993 from the farmers’ cooperative all the ylang-ylang he could get his hands on. That ended up being all the ylang-ylang not yet spoken for that late in the season, or about 40% of the entire ylang-ylang crop (20 metric tonnes), with a value of 1.15 billion Comorian Francs, since ylang-ylang cost then around 57,500 Comorian Francs per kilo.
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“He lastly secured a purchase agreement from Chanel to deliver the ylang-ylang a month later, at the end of January 1994. In order to facilitate the deal, he undercuts all the other smaller suppliers by almost 10 per cent or around 2 million French Francs, selling 23 million worth of ylang-ylang to Chanel for only 21 million French Francs, a great deal for Chanel, so they think.
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“After the devaluation he sells the ylang-ylang to Chanel for 21 million French Francs which is converted into which is 1.575 billion Comorian Francs. He can easily pay 1.15 billion Comorian Francs note he owes for the ylang-ylang to the Comorian central bank and pockets the 475 million Comorian Francs difference, which is converted to 5.67 million French Francs (at the post-devaluation rate). Keep in mind that, except for sending to Bernard to and from Paris twice, there were almost no up-front charges, almost 6 million FF of pure profit for timely, privileged information.
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“Now, who lost? Obviously Chanel lost a bundle. Had they known the devaluation was going to take place, they certainly would have waited a month to make a commitment to buy that much ylang-ylang. They were able to write it off; ultimately, it’s small change for a company that big.
“The Comorian farmers, however, were less than amused. They also lost since they would have charged more for their crop after the devaluation. That amount, small compared with Chanel’s losses, would have been mattered a lot to them.
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“Was it legal? Was it ethical? Was Gnafron a sharp businessman or simply an opportunist? The contracts were all legal, of course. So no crime was committed from a European point of view. But, now, let’s looks at from Kemal’s point of view. Not only were hundreds of Comorians cheated, farmers he knew and used to represent, but also Islam forbids the non-productive use of money, the making of money from money.
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“From that point of view, Kemal was outraged and so demanded the Gnafron’s profits go to the ylang-ylang cooperative. He promised he would make a big stink about it at the next OAU meeting otherwise.
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“Gnafron bought some time by giving in, but was on the phone immediately with stories that Kemal was going to kick out the whites and denounce France at the OAU meeting. He requested ‘stabilisation assistance’. The boys at Quai d’Orsay rejected his pleas and began an investigation into Gnafron. How you got involved is still a mystery to me, but I left it out of the original article since it strayed from the point of my article.”