'SADC Single Currency by 2018 Doubtful'

Delegations arriving in Namibia for the SADC thirtieth anniversary summit on August 16-17, 2010.
Originally uploaded by Pan-African News Wire File Photos

‘Sadc single currency by 2018 doubtful’

Munyaradzi Huni
Zimbabwe Sunday Mail

About 15 Sadc Central Bank Governors and the Sadc Secretariat last week met in Harare to deliberate on issues to do with the integration of the region and the introduction of a single currency by 2018.

There are fears that the integration and the introduction of a single regional currency will tilt balances of trade and investment in favour of the more stable economies in the region that may eventually swallow the smaller economies. Assistant Editor MUNYARADZI HUNI (MH) speaks to the Governor of the Reserve Bank of Zimbabwe, Dr Gideon Gono (GG), who hosted the Committee of the Central Bank Governors.

MH: From September 29 to October 1 2010 the RBZ has been hosting the meeting of the Central Bank Governors for the first time in Zimbabwe since the establishment of this committee in August 1995. Dr Gono, can you tell us the significance of hosting such a meeting?

GG: Hosting of the CCBG is a momentous occasion for Zimbabwe and reflects the country’s commitment and active participation in regional integration initiatives within the auspices of Sadc.

This has also raised awareness in the country about the regional integration initiatives under Sadc.

MH: Briefly can you explain how the meeting went and what Zimbabwe should expect out of it?

GG: Governors were seized with the implications of the global financial economic environment on Sadc economies, focusing on constraints, opportunities and policy implications.

Governors also discussed in detail the macro-economic developments in Sadc member countries and progress towards attainment of macroeconomic convergence targets.

Deliberations also focused on critical success factors and challenges militating against attainment of targets and opportunities in the region.

Governors reaffirmed their commitment to pursue the macro-economic convergence programme, which will foster economic stability in the region and promote economic growth.

MH: Governor, we are aware that the meeting came at a time when the Sadc region is pursuing a regional integration programme aimed at promoting economic growth trade and investment. Why are we seeking regional integration and what do you foresee as some of the challenges the region will face in trying to integrate?

GG: The harmonisation of macro-economic policies within the context of regional integration is a critical stepping stone towards attainment of macro-economic stability, growth and development in the region.

In addition, regional integration accords member states immense trade and investment opportunities, and an expanded market for the country’s products.

The region is facing a myriad of constraints that have been aggravated by the global financial crisis which engulfed the global economy in 2008.

The adverse effects of the global financial crisis on capital flows and terms of trade resulted in deterioration of balance of payments positions, thereby retarding economic growth in member states.

MH: Among other things, the committee is trying to promote closer co-operation among central banks in the region and the development of sound institutions. At present, what would you say is the level of co-operation between the central banks?

GG: All central banks committed themselves to co-operate within the regional integration agenda under the Finance and Investment Protocol (FIP).

In pursuit of regional integration, a Regional Indicative Strategic Development Plan (RISDP) was developed, specifying milestones, targets and action plans to be undertaken by member states to achieve macro-economic convergence.

Sadc members states committed themselves to a programme to reduce inflation to a single digit by 2008, to reduce current account deficits to less than 9 percent as a percentage of GDP as well as reducing budget deficits to 5 percent by 2008 and 3 percent by 2012.

Member states also agreed to reduce public debt to sustainable levels of below 60 percent as a percentage of GDP.

Central banks are also closely co-operating in the harmonisation of legal frameworks, information communication technology (ICT), national payments, banking supervision and financial markets deepening.

MH: What progress has been made towards meeting the macro-economic convergence targets?

GG: Member states have made significant progress towards the attainment of macro-economic convergence targets as reflected by the attainment of single-digit inflation levels, low budget deficits, and positive growth rates.

Positive developments on the inflation front have largely benefited from the implementation of prudent fiscal and monetary policies in the region.

However, rising international oil and food prices and energy shortages continue to generate adverse inflation pressures in the region.

MH: Can you shed light on some of the issues that were discussed during your meetings?

GG: The committee also discussed issues relating to the following: progress on the implementation of the Sadc Free Trade Area, which was launched on August 2008; and progress on the establishment of the Sadc Customs Union.

The original target date of establishment of 2010 is no longer attainable and new time frames have to be developed.

We also discussed progress on the establishment of a peer review panel consisting of Central Bank Governors and Ministers of Finance to review progress towards macro-economic convergence.

MH: The committee is also trying to promote the harmonisation of monetary investment and foreign exchange policies with efforts being made for the adoption of a single regional currency by 2018.

What are the advantages of having a single regional currency and do you think this is achievable by 2018?

GG: A single currency facilitates intra-regional trade and investment and eliminates the distortionary effects of exchange rate fluctuations.

The adoption of a single currency by 2018 will largely depend on the expeditious establishment of a customs union, which is currently lagging behind, a common market by 2015, a Sadc Central Bank and Monetary Union by 2016.

The adoption of a single currency by 2018 may not be achievable due to delays in the implementation of some of the agreed action plans, adverse effects of global shocks and prolonged negotiations on some of the key issues.

MH: There are some arguments in some quarters that the single currency will tilt the balance of trade and investment in favour of the more stable economies in the region. What is your comment?

GG: The single currency will be adopted at an opportune time when member states have attained macro-economic convergence.

In consequence, all economies will be integrated and will derive mutual benefits from trade, investment and infrastructure development.

MH: Zimbabwe is currently using the multiple-currency system and we don’t have our own currency. How do we stand to benefit from the single regional currency?

GG: According to fiscal policy measures, the local currency will only be re-introduced at a time when the economy is stable (around 2012).

The adoption of a single currency in the region will eliminate distortions associated with exchange rate movements, and facilitate intra-regional trade and cross-border investment. The region will also be served by a single currency and a single monetary policy.

MH: As governors from Sadc, how do you expect to deal with issues brought about by the adverse external economic shocks from other regions and the limited non-debt capital flows into the region?

GG: The recent experiences in the world have brought to the fore the need for the region to focus more on domestic constraints to promote economic growth, promote investment, develop infrastructure, and implement strategies to enhance power generation in the region.

Member states will also focus their energies on value addition and promotion of manufacturing industries to reduce reliance on primary commodities which are susceptible to adverse external shocks.
Investment in human capital will also be a critical success factor.

MH: What measures will you put in place to eliminate domestic constraints to foreign direct investment, especially in infrastructure and energy generation because these two sectors will play an important role in regional integration?

GG: In view of the critical role played by infrastructure and the energy sector in the meaningful attraction of foreign direct investment in the region, Sadc constituted a dedicated directorate on infrastructure development.

The directorate has been mandated to spearhead the development of infrastructure and energy generation in the region.

In Zimbabwe, focus has been on attracting foreign direct investment, upgrading infrastructure and exploring alternative forms of energy.

MH: Looking at Sadc what chances do you think the region has to compete with other regions in Africa and beyond?

GG: The region has huge potential for growth. Sadc is a huge market with a population of about 250 million and a combined GDP of US$400 billion, vast mineral and natural resources as well as large tracts of arable land.

The Sadc region is an economic bloc to reckon with on the global scene.

At the continental level, efforts are now geared at harmonising African economies through integrating existing trade configurations. This will further enhance the continent’s ability to compete as a single force with the rest of the world.

MH: Would you describe the meeting by the committee as a success and after the deliberations in Zimbabwe, what’s next on the committee’s agenda?

GG: The meeting was very successful as evidenced by the overwhelming attendance by delegates from Sadc member states.

Fifteen central bank governors and 30 senior officials from the Sadc region attended the meeting. Also in attendance was the Sadc Executive Secretary, Sadc Bankers’ Association and the Committee of Sadc Stock Exchanges and other invited guests.

Key issues relating to macro-economic convergence were discussed.

In addition, governors deliberated on improving macro-economic management, shipment and clearing of goods, infrastructure development, energy development, improving the quality of statistics and currency convertibility.

The meeting examined the comparative advantage of the region and how to build on advantages conferred to them by the availability of abundant natural resources.

Sadc central bank governors meet twice a year, normally in April and September.

The next meeting in April 2011 focuses on projects as well as detailed procedural and administrative issues arising from previous and current deliberations.

MH: Dr Gono, thank you.

GG: You are welcome.