Africa’s dream of a single currency

By Penda Jonas Hashoongo
November - December 2015
Editors Note

In 2004 after the establishment of the AU from the OAU, a decree was set that by the year 2021, Africa would have a single currency so as to aid the continent’s holistic development, rather than relying on each country’s economy to develop at its own pace.

Fast-forward a decade, and countries like Namibia and Angola are going on international markets to get capital to fund their respective development agendas.

The interesting thing here is that with the aforementioned decree in mind, a neutral perspective would expect African countries to be making financial decisions which are in line with the prospective establishment of the continent’s single currency, something which has worked out very well for the European Union (EU).

Firstly, the benefits to be reaped from the successful implementation of the single currency are boundless for Africa as a continent, but one needs to look at various factors before we can really consider the aforementioned decree credible. The one key aspect which we need to look at is infrastructure.

The reason Europe has been able to capitalize on the single-currency system is because it has a well-established and multi-faceted approach, where both production inputs and mechanisms to get finished products to where they need to be, are in place.

The unfortunate reality is that Africa does not share this trait. The disparity in the advancement of infrastructure is vast around the 54 African nations, and is caused by factors which are more political than economic.

The second factor we need to consider is political stability. The only way the concept of a single currency can bear fruition is if all African countries are united on a single fiscal goal. This is or will be hampered greatly by the lack of political stability in certain countries which are yet to organize their governance structures.

It makes little sense for an entire continent to adopt a single fiscal approach when there are countries within it which are still experiencing civil wars, or are under constant threat of a change of power at any given point through means of a coup d’état or other less formal ways.

Another important factor which needs to be overcome by the continent in its aim to create this single-currency system is the enhancement of the credibility bestowed upon monetary institutions.

While these are inherently paired with political influence, it is also important to understand that this credibility is something which will require a great deal of time to establish, certainly more than the six (6) years that Africa has to attain its goal of a single currency.

The unification of the five monetary unions (Arab Monetary Union (AMU); Common Market for Eastern and Southern Africa (COMESA); Economic Community of West African States (ECOWAS); Economic Community of Central African States (ECCAS); and the Southern African Development Community (SADC)) and the subsequent adoption of the single currency for Africa will only happen through concerted efforts from all these entities.

Perhaps, the most pivotal part of the execution of this single-currency plan is the establishment of a Central Bank which will monitor the fiscal activities of the entire continent, in addition to setting the economic agenda.

This organization will have to be free of any external influence, and will require the continent’s best economic minds to operate.

The vetting process of the individuals required to run this organization alone would take longer than the six years Africa has to get to a single currency.

While the need for Africa to become autonomous in its fiscal activities is evident and would clearly bring about great rewards for the continent and make it a strong trading block, it is difficult to see how this goal can be attained within the stipulated time period.

Perhaps the goal can be extended to a period closer to 2030 so as afford the monetary unions a chance to align their fiscal policies.