Mzansi Afrika

From Johannesburg South Africa, a window on the world

Tuesday, August 03, 2004

A single currency for Africa?

The Nepad Business Group is a group of organisations claiming as their mission a committment to helping Africa realise its full economic potential. The group acts as a medium between NEPAD and private companies who support its aims. One of the organisations in the Nepad Business Group is the African Business Roundtable. Their executive president Alhaji Bamanga Tukur is promoting the introduction of a single currency for Africa, much along the lines of the Euro I would imagine. Tukur is also Chairman of the umbrella Nepad Business Group, so I assume that Nepad also supports a single African currency in the longterm. Tukur thinks the African economy will do better under a single currency. He says the first step towards achieving this was to begin with the West African Monetary Zone (WAMZ) as proposed by the Economic Community of West African States (ECOWAS). Under a proposal already ratified by the of Heads of States and Governments, the West African common currency - ECO - will be coming into operation throughout the sub-region on July 1, 2005.

According to Tukur, "the introduction of a common currency in Europe had made it possible for the international community to treat the European market as a bloc rather than view the potentials of each national market. He said the same advantages would accrue to Africa if a common currency were to be introduced."

The Brookings Institute, a Washington based think tank, has a detailed analysis on the issue. . "Monetary union can in fact address very few of Africa's fundamental ills. At best, it can produce low inflation, but it cannot guarantee growth, and at worst, it can distract attention from essential issues. A more promising initiative is the New Partnership for African Development (NEPAD), through which African countries hope to exert peer pressure to correct governance failures and thus make progress in correcting Africa's problems. It is too early to see how effective that process will be, but if it succeeds, monetary union can crown that achievement. If not, monetary union will almost certainly fail, and highlight Africa's more fundamental policy failures."

The Sunday Times reports that the African Union has an explicit goal to establish a common currency for its members by 2030, in the same mould as the common currency adopted by 12 members of the European Union. Critics say they don't think this will work. African economies, are too diverse and far away from the kind of convergence that enabled European economies - after a long process - to move towards monetary union. (More)

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