Common currency for SADC still a long way off

ALAN PEAT THERE HAS been a lot of noise recently about the proposed common currency within the Southern African Development Community (SADC) – but the viability of this move is still under serious debate, and at least a decade will pass before it could become a reality if it is accepted. Professor Colin McCarthy, an associate of the Trade Law Centre of Southern Africa (tralac), examined the viability of SADC adopting a common currency prior to the recent meeting of the committee of SADC central bank governors and the European Central Bank. “African countries are exposed to substantial unforeseen external shocks associated with the absence of diversified economic activities and their dependence on one or two primary commodities,” he said. “An indication of this can be observed in the widely different movements in the terms of trade of SADC member states.” He asked whether it was appropriate to expect these economies to sacrifice the exchange rate and interest rate as policy variables and to pursue broadly similar fiscal policies. “I believe such an expectation to be less than prudent,” said McCarthy. “In fact, external shocks, the differences in economic structures and the challenges the countries face may require some divergence in these indicators in the process of adjustment.” Robert Bunyi, head of Standard Bank economics division’s Africa desk, believes the idea has merit. “From a policy perspective,” he said, “I think it’s a really good idea, as it will encourage investment in the region and internal trade. “It’s all about political commitment at the end of the day.” However, Nedbank economist Magan Mistry told FTW: “It’s still a long way off” – adding that he had heard whispers of a 2014 date. “A lot of fiscal and economic policy must be aligned to suit the concept.” Mistry also cites the problems of Angola, Zimbabwe and the DRC, amongst others, where inflation needs to be brought down to single digits – AND on a sustainable basis. “Customs harmonisation also has to be achieved to make the idea feasible,” he said. “It is probably achievable, but it will need policy co-ordination at all levels.”