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Common passport, common currency?

SADC targets single regional currency by 2018, AU wants an African economic and monetary union by 2025.

As the United Kingdom prepares to negotiate its exit from the European Union, the African Union (AU) continues to take steps toward regional integration with the launch of an Africa-wide passport. But experts say plans for a pan-African economic and monetary union, will prove more challenging.

At present 14 African nations – including 12 former French colonies – make use of two common currencies the West African – CFA franc and Central African CFA franc, both of which are guaranteed by the central bank of France and pegged to the euro. Six nations in the Economic Community of West African States (ECOWAS) have committed to establishing a common currency that will be merged with the West African CFA franc. In 2013, Kenya, Tanzania, Uganda, Rwanda and Burundi agreed to merge their currencies over a 10-year period. And SADC’s regional economic integration plan targets the implementation of a single currency in 2018. According to a United Nations Conference on Trade and Development (UNCTAD) paper, the various regional initiatives are expected to result in the establishment of an African economic and monetary union, as laid out in the Abuja Treaty of 1991. Officials at the 2015 AU Summit in Johannesburg said they aimed to implement a single currency and establish a single continent-wide economic union by 2025.

“A large part of the continent, except South Africa, already enjoys a common currency. It’s called the US dollar,” said Dr Martyn Davies, managing director of emerging markets and Africa at Deloitte Frontier Advisory. He said low levels of intra-African trade have more to do with dysfunctional borders and arbitrary protectionism rather than the lack of a common currency.

Pierre Wolmarans, head of corporate and investment banking for Southern Africa at Société Générale, said that a common currency is a good concept as African states would have more power and stability as a collective, especially as the US dollar is a benchmark currency without any benchmark. “The reality of the world today is that the centres of power sit in London and New York, and so a lot of small emerging markets are at a disadvantage. Look at the attacks in France, the ratings agencies didn’t say anything, it had little effect on the euro. If that had happened in South Africa, our rand would have been extremely vulnerable,” he said.

He added that a common currency would also prevent the dilution of value when it comes to intra-African trade as it would eliminate the need to convert one African currency to the dollar before converting it to another.

According to Mike Keenan, a currency strategist at Barclays Africa, a common currency would “get in the way of the law of economics” – supply and demand – as the currency wouldn’t be able to weaken as and when an individual economy needs. “Currency is a lever for economics to play out and a common currency would remove one of those critical levers,” he said.

Davies said different countries across the continent with different levels of economic activity and different levels of competitiveness as well as political and financial management would not make for an optimal currency region. He said that trying to manage the Zimbabwean economy in a currency union would make the Greek debt crisis look like a picnic. “We need to strip away the romanticism around African regional integration and come back to pragmatism,” he said.

A common currency would also create distortions in economies – as evidenced by Greece and Germany both using the euro – which, would be difficult to fix further down the line, said Keenan.

Wolmarans said an African monetary union would be able to work if each country sticks to the fundamental disciplines of the financial partnership such as the EU’s rule that no country may run a budget deficit over 3% of GDP. He said the euro, currently trading at 1.10 to the dollar, started on par with the dollar, with its intrinsic value improving as the stability offered by the common currency made the EU a more attractive investment destination. “The problem is that the EU allowed individual countries to issue bonds in a common currency without too much discipline. The EU simply allowed Greece to issue too many bonds,” he said.

“It is a big ask but with determination, hard work discipline and good policies it can be done… But each country has got to stick to the rules. If even one country goes crazy, it can collapse the entire union within a few years,” Wolmarans said of establishing a monetary union by 2025 and ensuring its success.

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A common AU passport is laughable. Already, most countries in Africa have borders so pours that the indigenous people of the continent move freely from one country to another either without documentation or with the facility of a simple and cheap bribe to border authorities. A common AU passport will do nothing for the security of any independent nations border integrity until we have a display of zero tolerance for corruption and African governments without corrupt leaders. And this tall order is nothing but a pipe dream.

On the question of having a uniform currency, well, the writer of this article is correct when she claims that most of Africa already have that in the form of the USA $. Again, until we have honest leadership across the length and breadth of this dark continent, Nowhere in the world would trust a single currency unit, as we all know that tribalism, religion, and differences in ethnic backgrounds on the African continent are so diverse that the success of a single currency across the continent will never be treated or work the way the Euro does in Europe. The regular and complex factional differences in Africa will ensure its instability and failure. Besides, ion one looks at the poverty levels created by the governments in Africa, those wealthier nations would end up supporting the corrupt government leaders in the poverty stricken countries continuously. No, it is a recipe for corruption and disaster – irrespective of which any so called ‘credible’ African leader proposes this hair brained scheme or what he or she may claim about it.

Quite right. The trouble is that the more common sense that is directed towards the decision-makers (ha-ha) in Africa, the more likely they are to do something utterly stupid. Perhaps if we all wrote to all the “leaders” and said we think the common currency / passport is a fantastic idea, perhaps they would do the sensible thing – yeah, right!

Iron and clay do not mix. Sorry but huge unions will never work as those in poorer countries will flood the rich countries and thus leaving poorer countries without the skills needed to develop.

If they are aiming for an ‘EU’ they are greatly mistaken and wasting our tax money.

It’s not April 1st somewhere, is it?

So Africa will implement something has not worked in the Developed World, and is on the brink of a meltdown.

Another corrupt scheme to line the pockets?

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