Single Currency for Africa: Incidental Or Essential?

by L.Chinedu Arizona-Ogwu

Nigeria hopes it and West Africa neighbourhood will rejoin a planned Africa single currency project one day. Rulers from African countries will meet at the next bi-annual AU summit to discuss political, security and financial issues affecting the world’s top sub-Saharan region. Nigeria still hopes that there will be a single currency for the countries of the (African Union) Council one day.

In 1998 in sub-Saharan Africa averaged $535 in constant 1995 U.S. dollars, according to the World Bank–a decrease of $52 from the 1970 average of $587. The region was the only one in the world to experience a decline in per capita GNP over this period.3 (See Table 1.) In fact, sub-Saharan Africa has experienced declining rates of economic growth each decade since 1960. From 1961 to 1969, average annual growth in GNP was 4.96 percent; from 1970 to 1979, it was 3.79 percent; from 1980 to 1989, it was 2.15 percent; and from 1990 to 1998, it was 2.05 percent. These statistics are even worse than they first appear. When relatively wealthy African countries such as South Africa ($3,829 per capita GNP), the Seychelles ($6,810), Mauritius ($3,999), Gabon ($4,115), and Botswana ($3,460) are factored out of the analysis, per capita GNP falls to $451 for the remaining countries. In fact, 21 of the world’s 30 poorest countries are located in sub-Saharan Africa. To put this in perspective for Americans, the combined economy of the 48 sub-Saharan Africa countries is smaller than the individual economies of six U.S. states: California, Florida, Illinois, New York, Pennsylvania, and Texas.

The second largest African economy withdrew from the project last year in protest against placing the joint monetary council in rival South Africa. Nigeria policymakers had said rejoining was not on the table unless it is profitable. Neighbouring non-OPEC Equatorial Guinea pulled out in 2010 and ruled out any comeback. Only four countries from the 53-nation AU Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of the Congo, Republic of the Congo, Djibouti, Egypt, Equatorial Guinea,
Ethiopia, Gabon, Gambia, Ghana, Guinea-Bissau, Guinea, Kenya, Lesotho, Liberia, Libya, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Nigeria, Rwanda, São Tomé and Príncipe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, Sudan, Swaziland, Tanzania, Togo, Tunisia,
Uganda, Sahrawi Arab Democratic Republic, Zambia and Zimbabwe— remained committed to form the long-delayed monetary union but the project made little progress this year with the euro zone debt crisis limit it.

Our banks and financial organizations are not interested in investing in small and medium industrial sectors as they find big industries more suitable for providing loans and earning profits. Their main target is to earn interest and profits, ignoring the social welfare issues,’ the minister told a function at the city’s Nigeria Institute Of International Affairs .rural peasants have no title deeds to their land…. They are not allowed to own fixed assets and that makes them a very disadvantaged group of people…. Because rural people could not own their land, pass it on to their families when they died or sell it, they were not as motivated to get the most out of it economically as they could, compounding their poverty

Most of Sub-Saharan Africa is in the World Bank’s lowest income category of less than $765 Gross National Income (GNI) per person per year. Ethiopia and Burundi are the worst off with just $90 GNI per person. Even middle income countries like Gabon and Botswana have sizeable sections of the population living in poverty. North Africa generally fares better than Sub-Saharan Africa. Here, the economies are more stable, trade and tourism are relatively high and Aids is less prevalent.

Economists have suggested banks in Nigeria should reduce interest rate spread by increasing operational efficiency and competitiveness for sustainable economic development. Taking part at a “nigeria4betterrule” emergency seminar on Wednesday, they observed that the current interest rate spread—the gap between interest rates on deposit and lending — ranged between 5 and 8 which was too high, from a press release. The seminar, titled ‘Determinants of Interest Rate Spread in Nigeria’, was organized by Policy Resource Program of the Nigeria Institute of International Affairs (NIIA), Victoria Island ; Lagos at its conference room.

It was clarified that minimal government intervention in the economy and economic growth is the bane of Africa’s laxity. The freer the economy, the better off the people at all income levels. Countries that have the freest economies had an average annual growth rate of 2.9 percent from 1980 to 1993; countries that were rated “mostly free” had an average long-term growth rate of just less than 1 percent. By contrast, “mostly unfree” countries saw their economies contract over the same period by an average of 0.3 percent a year, and countries with repressive policies saw their economies shrink by an average of 1.4 percent a year over the same period. Of the 42 sub-Saharan African countries graded in the 2000 Index, not one received a rating of “free” and only seven were rated “mostly free.”

Uzondu Ohaleta, a NIIA’s research fellow who presented the key note paper at the seminar, said that high administrative costs and non-performing loans in the banking sector were responsible for higher interest rate spread in this country. Former governor of Central Bank Of Nigeria; Paul Ogwuma addressed the seminar as special guest while the director general of NIIA, Professor Bola Akinterinwa, presided over the session. Professor Akinterinwa said that foreign commercial banks should be brought under strict scrutiny as ‘they could not bring competitiveness’ in the banking sector.He also observed that foreign commercial banks’ non-interest income was substantially high and needed to be reduced. Supporting Professor Akinterinwa, a renowned economist in Nigeria; Prof. Christopher Balogun said, ‘We need to maintain certain rules and regulations to bring competitiveness in the banking sector in order to make a sustainable economy of our country.’
He said that the Central Bank Of Nigeria (CBN) had no control over foreign banks and companies in this country. This does not indicate a healthy situation.

But the government is trying to change their [financial institutions] mindset; prioritizing industrialization instead of trade financing to encourage production instead of imports. We want to change our economy into an industry oriented one instead of trade oriented. For this, the Nigeria government has already asked the banks and financial intuitions to take necessary measures. The government of Nigeria would take a move soon to set up a specialized park for development of light engineering industries. Currently about six artisans including owners, entrepreneurs, skilled and semi-skilled workers are working in the sector having nearly 40,000 light engineering industries. The light engineering industries would also be identified as a thrust sector in coming industrial policy.

While no African nation has joined the ranks of the developed nations in the Organization for Economic Co-operation and Development (OECD) yet, the entire continent is not utterly impoverished and there is considerable variation in its wealth. North Africa has long been closely linked to the economies of Europe and the Middle East. South Africa is by far the continent’s wealthiest state in total GDP, and its neighbors have shared in this wealth. The small but oil- rich states of Gabon and Equatorial Guinea, round out the list of the ten wealthiest states in Africa.

The temperate northern and southern ends of the continent are wealthier than tropical sub-Saharan Africa. Within the tropics, East Africa, with its long pre-c

olonial history of trade and development, has tended to be wealthier and more stable than elsewhere. Islands such as the Seychelles, Réunion, Mauritius, and Cape Verde have remained wealthier than the continental nations, although the unstable Comoros remains poor.

The poorest states are those engaged in or just emerging from civil wars. These include the Democratic Republic of the Congo, Sierra Leone, and Burundi. In recent times, the poorest region has been the Horn of Africa, although it had historically been one of the wealthiest regions of sub-Saharan Africa. Ethiopia in particular had a long and successful history. The current poverty of the region, and the associated famines and wars, have been a problem for decades

Energy and resources stocks gained in the subsahara, Sahara and west sahara Africa is on strong crude prices as a severe political protests in the northern hemisphere continues to deepen. Sao Tome shares closed down 1.89 per cent at 3,192.78 due to fresh concerns over possible government tightening measures.Africa stocks—hit by profit-taking after three days of gains—were helped by easing fears over their varying currency strength, as traders bet that Africa’s finance chiefs will be less tolerant of a stronger unit than their predecessor.

Is a weaker currency is better for exporters? Dr. Tim Menakaya, a former health minister with little experience in financial matters, vowed to work with the central bank to steer the Africa union to an appropriate level, breaking from his predecessor’s tolerance of a stronger currency.My thinking is that it would be preferable if the correction continues toward a weaker Africa currency.The dollar rose to Africa currencies in the wake of the remarks, from around 100% shortly before .Africa Airlines tumbled 9.5 per cent as fears resurfaced that the debt-ridden carrier would file for bankruptcy, despite reports it is set to get an injection of public funds.

Traders inside Africa were waiting for key US Labour Department jobs data on Friday, and ‘they are ready to take profits from the recent gains. The index had closed flat after a report ahead of Friday’s key data showed the private sector shed a higher-than-expected 84,000 jobs in March.
Federal Open Market Committee minutes noting US unemployment would ‘remain elevated for quite some time’ also weighed on sentiment. Many regional players decided to cash in on recent market rises that have been fuelled by the predominantly upbeat sentiment towards the global economy.

Many local manufacturers in the country lack sound capital and expertise to enable them manufacture goods that meet criteria. Local manufacturers have a long way to go since many of them can not even afford to hire competent personnel for their small industries to thrive. The African Economic Outlook report specifically mentions that Africa’s trade with China has multiplied by 10 since 2001, reaching over USD 100 billion in 2008. The economies of China and India have grown rapidly, while Latin America has also experienced moderate growth, lifting millions above subsistence living. By contrast, much of Africa has stagnated and even regressed in terms of foreign trade, investment, per capita income, and other economic growth measures. Poverty has had widespread effects, including low life expectancy, violence, and instability, which in turn have perpetuated the continent’s growth problems. Over the decades, there have been many unsuccessful attempts to improve the economies of individual African countries.

Africa should consider a common currency and push for a regional monetary fund as economic integration picks up speed. A common currency may be some time off but argued it was time to think about the idea. It may be several decades to create an African currency, but it may be the time to start thinking about it because African economic integration is gradually approaching the level of Europe. As the global economy slowly moves out of its worst crisis in more than 70 years, with most analysts acknowledging African nations should lead the way.

Key African states have been moving to tear down trade barriers and streamline disparate trading rules and procedures in a bid to better link their economies. A network of free trade agreements has already been signed and more are under negotiation. And on January 1, 2012 a giant free trade zone covering 1.7 billion consumers in Nigeria and 10 Southeast African nations will go into effect.

An African version of the International Monetary Fund has become more relevant given the region’s deepening economic linkages. Such a fund will help ensure that central banks have enough to shield their currencies from speculative attacks like those during the 1997-1998 African economic crisis. African countries together now own close to $5 trillion of foreign reserves… If we could use about five per cent of those foreign reserves, it would be around $250 billion which is enough to create the common fund. I think it is about time that we start to… try to coordinate our foreign exchange policies and eventually try to coordinate our monetary policies.

A regional monetary fund ‘today is possible and probably desirable.’ Nigeria proposed the creation of an African Monetary Fund through the introduction of African Development Bank fund, during the 2003 meltdown after the IMF came under heavy fire for the way it handled the crisis. The United States opposed the idea, fearing an African fund could dilute the influence of the Washington-based IMF.A $120-billion currency swap fund to be launched by African economies in March could be developed to become an African Monetary Fund, adding it could be ‘supplementary’ to the IMF and not replace it.

Does Africa want her currencies to weaken more? If these currencies weaken more, all stake-holders should work with ADB to bring the currency to an appropriate level given its impact on the economy. The dollar jumped half the stronger African currencies on the view that it will be more inclined to act against excessive currency rises that could hurt the export-driven economy, though some analysts questioned how the markets would interpret.

For most of Africa’s history, the aggregate burden of government was below 10 percent of GDP. This level of government was consistent with the beliefs of the Africa’s founders. As the IMF has explained, “classical economists and political philosophers generally advocated the minimal state-they saw the government’s role as limited to national defense, police, and administration.” Africa’s policy of limited government certainly was conducive to economic expansion. In the days before income tax and excessive government, Africa will move from agricultural poverty to middle-class prosperity. Reducing government to 10 percent of GDP might be a very optimistic target, but shrinking the size of government should be a major goal for policymakers. The economy certainly would perform better, and this would boost prosperity and make Africa more competitive.

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1 comment

Ibn Chambas February 26, 2011 - 8:48 am

Anyway single currency may enhance purchasing power into variety of Africa wobbling currencies.


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