African Union considers a single currency

Inge Beukes

Africa claimed the global spotlight on 21 March at the African Union summit in Kigali, Rwanda. This event saw 44 representatives out of 55 African Union (AU) member states sign a deal to create the African Continental Free Trade Area (AfCFTA) agreement. The decision to establish the AfCFTA was decided in January 2012, and it took lengthy negotiations that started at the beginning of 2015, lasting until December 2017, to ultimately reach a final agreement. According to Aljazeera, the objective of the AfCFTA is to create a free-trade area to improve regional integration and boost economic growth across the continent.

The agreement thus commits countries to remove tariffs on 90% of goods, with 10 % of “sensitive items” to be phased in later. The agreement also proposes the possibility of a single African currency in future. South Africa and Nigeria failed to sign the agreement, yet they are some of the biggest economies in Africa. According to eNCA, President Cyril Ramaphosa did not sign the agreement as the presidency has certain reservations on outstanding issues. Coupled with this, constitutional and internal processes were not followed. In a statement released by the Presidency, Ramaphosa said that South Africa will become a signatory to the agreement once the legality of the agreement has been processed and ratified by the South African parliament, cabinet and the National Economic Development and Labour Council (NEDLAC). On the other hand, Nigeria’s President Buhari commented on twitter saying: “We will not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to Nigeria becoming a dumping ground for finished goods.” Although, according to CNN, Albert M. Muchanga, AU commissioner for Trade and Industry, remains optimistic on the success of the agreement by saying that the other countries will come on board.

The idea of a single African currency was supported by Ramaphosa at the African Union summit, as he enthusiastically said that we need to rid ourselves of colonial mentality that demands that we, as Africans, rely on other people’s currency. He further said that perhaps the day, the hour and the moment could have arrived for us to create a single African currency. According to the Business Insider, the Association of African Central Bank Governors announced that they were actively working towards a single currency and a common central bank by 2021.

This is due to the fact that currently, only 16% of African exports go to other African countries, and the rest go overseas, whereas 70% of trade in Europe is between countries that form part of the European Union. When discussing the advantages of a single African currency, Rentia Pretorius, an International Relations lecturer at the University of Pretoria, said that the adoption of a single currency makes it easier for people to compare prices. She went on to say that it is also more convenient for businesses that do not have to be insured against currency fluctuations, and intra-continental travelers can travel across borders without changing money. Pretorius draws attention to the fact that a single currency is more stable than individual national currencies. A single African currency can eliminate various barriers to trade, as Pretorius highlights that “multiple currencies’ values are always influenced by exchange rate volatility. The fluctuation in the value of currencies is a main obstacle for intra-continental trade because it is difficult to know when to buy or sell to foreign consumers.” As the question of the single African currency looms, it is inevitable that this move is compared to the European Union that walked this journey before. Pretorius addresses this comparison by saying, “The successful creation of the European Monetary Union (EMU) created the perception that regional cohesion will automatically flow from of a single currency. Economic integration took a very long time in Europe, a region with developed economies and sophisticated bureaucracies.

Africa should take gradual, incremental steps to ensure that its road to monetary union and a single currency is well managed.” As the question of the success of a single currency arose, a South African economist, Thabi Leoka, expressed her doubts, according to Business Insider. She says that she struggles to see the benefits for both the poor and the rich when making comparisons to the EMU. She goes on further to show the failures in the EMU by saying that the union has shown that countries like Greece and Portugal had to adopt a currency that was more expensive than their own, which made their own exports uncompetitive, and increased costs for the local consumer. It is safe to assume that a single African currency is not at the top of the AfCFTA todo- list as it weighs heavily with practical and implementation issues, and yet it remains in the pipeline.

 

Image: African Union flag

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