‘Premature’ to speak of single regional currency

2011-06-18 15:13

Unequal development among member states of three ­African trading blocs, which committed to establishing a free market, is a big hurdle to the adoption of a single currency, Trade Minister Rob Davies said this week.

“We must be close to Europe in terms of complementarity,” said Davies, citing it as an essential ingredient for economic regional ­integration.

Last week, the Common Market for Eastern and Southern Africa, the East African Community and the Southern African Development Community agreed to start negotiations that would pave the way for the creation of an $860 billion market.

Davies said it would be “premature” for the proposed free trade area to adopt a single currency, modelled along European Union’s euro, until these problems were addressed.

“In Europe, there are decent levels of development among the member states,” said Davies.

The proposed market, with a combined population of 590 million people, would straddle 26 countries stretching from Cape Town to Cairo, and was expected to significantly boost trade and investment on the African continent.

However, the planned free trade area did not include the Economic Community of West African States.

Standard Bank chief economist Goolam Ballim concurred with Davies that the structures of African economies were too dissimilar to make it possible to adopt a ­common currency in the short to medium term.

“Africa is a multi-speed economy. Some African economies have low levels of inflation while others have high levels.

They also have different levels of economic growth,” said Ballim.

He said that African countries needed to take a long-term approach in working towards achieving greater convergence in terms of economic policies if they are to adopt a single currency.

“We must be mindful that it took Europe several decades of economic and political assimilation before it gave birth to the euro,” Ballim said.

An adoption of a single currency would mean that all member states would have to give up their currencies and a central bank would have to be created to keep inflation ­under control over the area.

Davies said the organisations would negotiate for three years ­before setting up the area.

At the same time, the regions identified 80 rail and road infrastructure projects that would link the 26 countries.

These projects would lay the foundation for regional integration and cooperation.

Over the next three years efforts would be made to encourage closer cooperation on industrial development among member states to ­increase production of industrial goods and exports.

“There will also be a parallel process of negotiating free movement of businesspeople, who are looking for transactions and business opportunities,” said Davies.

Weak and skewed industrial ­development and poor infrastructure are always singled out by economists and trade experts as among the main obstacles to Africa claiming a bigger share of the global trade, which is dominated by rich Western nations and the emerging economic powers such as China, India, and Brazil.

It is estimated that the continent needs about $120 billion to eliminate its infrastructure backlog, mainly the construction of ports, airports, roads, rail and communications facilities.

Ballim said the creation of a large free market in Africa could provide big opportunities for South African exporters.

“It is noteworthy that Africa is South Africa’s largest recipient of our exports and the continent absorbs 15% of South Africa’s worldwide exports.”

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