One important lesson the African Union can learn from Brexit

Johannesburg – Regional economic integration in Africa can boost economic growth in countries through the free movement of goods and people. However, governments should take care to protect their monetary policy sovereignty.

Given the Brexit fallout in the European Union, there are a number of lessons the African Union (AU) can learn when implementing its Agenda 2063. One of the goals of the agenda is to support economic regional integration.

Regional integration requires countries to give up some autonomy to operate as a region within a global economy, explained Arthur Kamp, investment economist at Sanlam Investment Management. When it comes to regional integration, the issue around currency should not be taken lightly.

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The UK still managed to maintain control of its own currency. In a way this can work as an exit strategy. “It is difficult for countries which have adopted a single currency to leave,” said Professor Jannie Rossouw, head of the School of Economics and Business Science at Wits University.

He added that having a single currency is not as “simple” as people think, especially because each country has different needs and requirements. “One policy cannot work for all countries.”

In the EU, countries adopted a single currency but opted to have independent fiscal policies. The problem with this is that when imbalances occur in the fiscus of particular countries, these imbalances become difficult to correct with an inflexible currency, explained Kamp. “In some cases extreme austerity measures have to be taken, which was seen in Greece.”

A fiscal union would have worked better in Europe, said Kamp. This would ensure a fair degree of control over fiscal policies. But this has implications in that countries will have to give up more sovereignty.

Rossouw shared these views. If a single currency is to be adopted then there should be “strict rules” for fiscal policies, and penalties for breaking these rules. “The EU did not apply those rules diligently,” he said.

In the Southern African Development Community (Sadc), the notion of a single currency is “complicated”. Each of the countries is different, with differing levels of development and industrialisation, he said. And even though the idea was introduced in 2008, achieving this before the launch date set out in 2018 may prove difficult.

Sadc Banking Association manager Maxine Hlaba explained that the rand had initially been used as a settlement currency within the region. But due to its volatility, the US dollar was proposed as a new settlement currency. One of Hlaba’s concerns is that African countries often default to using the dollar because they are “comfortable” with it.

To circumvent this, one of the suggestions is for Sadc to introduce a “basket of currencies” for trade. But the problem is that the existing intra-trade payment platform has been designed to accommodate a single currency, she said.

“If we go the route of a single monetary policy and a single currency, we need to be aware that different countries have different circumstances,” said Kamp. “We need to consider that separating monetary policy and fiscal policy can create risks which need to be addressed.”