United we stand: divided we fall
Recognising that without an integrated economy they have little chance of surviving in the global economy, African economies are stepping up attempts to launch a central bank. Ayo Akinfe reports.
Conscious of the fact that it is the weakest link in the global economy, Africa is finally waking up to the realities of the hostile international marketplace and recognising that it needs a central bank to provide it with some hope of presenting a united front to the outside world. Over the last eight years, the African Union (AU) has intensified its efforts to make the establishment of an African Central Bank (ACB) a reality.
As things stand, Africa accounts for about 2% of global trade and the reality of the situation is that if the continent fell off the end of the world all that would be missed are the primary commodities it supplies. Conscious that one of the main reasons for this is because African economies are weak and can easily be picked off individually by powerful trading partners, the AU is eager to put together a common economic front.
In 1991, the then Organisation of African Unity (OAU) put together what was known as the Abuja Treaty, when it met in Abuja, Nigeria. Far-reaching and ambitious in its outlook, the Abuja Treaty laid down the framework for the creation of the African Economic Union (AEU).
Set up along similar lines to the European Economic Community (EEC) when it first took off, the AEU was charged with establishing grounds for mutual economic development among its member states. Recognising that African states are mounting efforts to collaborate economically but are impeded by civil wars and other problems, the stated goals of the organisation included the creation of free trade areas, customs unions, a single market, a central bank and a common currency, thus establishing an economic and monetary union.
It was anticipated that when fully up and running by 2028, the ACB would take over the responsibilities of the African Monetary Fund and would be based in Yaounde in Cameroon. However, at the 1999 Sirte Declaration, agreed after a meeting in Libya, where the OAU became the AU, member states called for a speeding up of this process with creation of the ACB by 2020.
When it is fully implemented after being ratified by the Pan-African Parliament, the ACB will be the sole issuer of the African single currency, will become the banker of all African governments and will be the banker to Africa’s private and public banking institutions. It will also regulate and supervise the African banking industry and will set the official interest and exchange rates in conjunction with governments.
Charles Soludo, governor of the Central Bank of Nigeria, comments: “The truth is that the [whole of] Africa needs to be one economy. Even the entire sub-Saharan Africa put together is the size of Belgium in economic terms, so, Africa put together is a small economy and there is the need for all of them to come together.
“The AU has agreed that Nigeria should host the ACB. This is only a building block towards having an African common currency and when that happens, the ACB will be located here in Abuja, I hope.”
Soludo, who is the current chairman of the committee of governors of central banks in the West African Monetary Zone (WAMZ), says that the sub-region is hoping to help speed up the process by reaching an agreement about a single currency among its own 15 members. If the Economic Community of West African States (Ecowas) can achieve monetary union among themselves, it will make merging with Africa’s other trade blocs a lot easier.
Currently there are several regional trading blocs across Africa, also known as regional economic communities, many of which have overlapping memberships. These regional communities consist primarily of trade blocs and also contain sub-groups with tighter customs and/or monetary unions of their own.
These regional blocs form the pillars of the African Economic Community, many of which also have an overlapping membership among nation states. They include Ecowas, the Arab Maghreb Union, the Southern African Development Community, the Economic Community of Central African States, the East African Community, the Common Market for Eastern and Southern Africa (Comesa) and the Community of Sahel-Saharan States.
Stressing that the creation of the WAMZ is a stepping stone in the right direction, Soludo says that the recent meeting of the West African central bank governors looked at the issue of building trade among its members. He addsd: “Our meeting enabled us to disclose what efforts we have been making to make West Africa a common economic space, a common market.
“This is because if you do not have trade, there is no need for currency. Part of the aim is to harmonise trade. You want to harmonise the way even the banking system operates.
“These are basics you need to have in place if you must have a common currency because you need common currency to facilitate exchange. But if there is nothing to exchange, then that is a problem.”
Free trade and Comesa
Of all these regional bodies, Comesa, is the largest in terms of national economies it integrates, with 20 member states stretching from Libya to Zimbabwe. Formed in December 1994, Comesa replaced a preferential trade area, which had existed since 1981.
Nine of the Comesa member states formed a free trade area in 2000, with Rwanda and Burundi joining in 2004 and the Comoros and Libya coming on board in 2006. Comesa has a combined gross domestic product of US$735.5bn and a per capita purchasing power parity of US$1.8bn.
Erastus Mwencha, the Comesa secretary general, says: “In the 1950s, Africa’s share of global trade was around 6% but today it is just barely 2% in spite of the fact that we have had seven or eight rounds of the General Agreement on Trade and Tariffs and now the World Trade Organisation. It is only through regional integration that we can realise long-term sustainable development.”
Like Soludo, Mwencha is of the opinion that there are too many odds stacked against African economies, hindering their progress. Trade barriers, punitive tariffs, unrealistic investment conditions, punitive lending rates and the asking of African economies to fulfil illusionary conditions before they attract miniscule sums of foreign direct investment, are all some of the challenges the continent faces.
If all goes according to plan, when the ACB takes off in 2020, Africa will at least be on the road to staging some sort of fightback. With the current odds stacked against the continent for now, it needs a united economy just to stand a chance of even maintaining its current meagre share of world trade.