No to Monetary Union for SADC
Maputo ‑ Southern Africa faces an uphill battle to achieve a proposed monetary union similar to the EU, as it battles to emerge from conflict and widespread poverty, but it may opt for trade integration to change the economic fortunes of the region, the International Monetary Fund, according to IMF Deputy Director.
David Lipton told The Southern Times in an interview in Maputo at the end of a three-day tour of Mozambique.
Lipton said targeting a single currency by 2016 would ignite inflation, budget deficits and foreign exchange reserves, with only a few of the 13-member bloc benefiting, given the region's recent history of conflict and vastly divergent economies.
“I think what’s important for this region is not monetary integration, but is trade integration.
“If countries can trade with each other, it will be good for everybody and it is something that can be done with very significant economic co-ordination.
“One simply has to agree not to charge tariffs or/and open up borders to trade and in doing so business links will form and that will be good,” he said.
SADC had planned to have a monetary union, similar to the European Union by 2016, as it battles to emerge from conflict and widespread poverty.
“I think we have learnt from the EU experiences that monetary unions can bring complexities that are not foreseen in the beginning.
“That is why I think that for this region (SADC) the way forward is trade integration and one good example is of Mozambique which is in the best position in the region to pursue economic integration because most of the hinterland countries would want to use its ports,” Lipton said.
The IMF boss also recommended that strong institutions and improved governance are keys to economic growth in sub-Saharan Africa.
“Most importantly‚ a new generation of African policy makers understands how to address the challenges their countries face.
“They are building a framework of effective economic policies on a foundation of stronger institutions and improved governance and so creating an environment in which business can flourish‚” he said.
“As continued uncertainty threatens many advanced economies‚ Africa is beginning to deliver on its economic potential‚ with solid growth and improvements in the lives of its people. Africa is changing and the world is noticing.
“Mozambique is a leading example of how much can change in a single generation.
“The potential for Africa and for Mozambique is huge. The biggest challenge is to seize that opportunity‚” he said.
Giving an economic outlook for the region, Lipton said, “The emerging market and developing economies have given life to the global economy‚ providing estimated three-quarters of growth since the financial crisis hit in 2008.
“We are projecting acceleration in these countries from 5.1 percent growth last year to 5.3 percent this year.
“They have benefited from the low global interest rates‚ high commodities prices‚ and solid domestic demand‚” he said.
“Africa has benefited tremendously from this trend. In 2008-2009‚ many were concerned that the continent would be hard hit by the global financial crisis.
“There was an effect‚ but most countries in southern Africa were remarkably resilient‚ notably the low-income countries.
“Growth was robust last year at 5.1 percent‚ and that should accelerate moderately in the coming years. We project 5.4 percent growth this year and 5.7 percent next years.
“Low-income countries should grow even faster‚ benefiting from rising domestic demand.”
Although the growth outlook for Southern Africa remained good‚ South Africa would be the laggard with growth at 2.5 percent this year compared with 4.8 percent for the region as a whole‚ Capital Economics said in March.
Lipton noted that Africa’s economic performance reflected many political‚ social and economic changes over the past generation.
“Mozambique’s success is a clear illustration that sound policies work.
Since the ending of the civil war in 1992‚ per capita GDP has increased more than five-fold with primary school enrolment at 90 percent currently compared with just 56 percent in 1995‚ while child mortality has fallen from 183 per thousand to 103 per thousand‚” said the IMF executive.