2009-12-02 tralac Newsletter
2009-12-02 tralac
Hotseat Comment
Colin McCarthy, a tralac Associate, comments on Monetary integration in Africa (VI).
In the previous comments in this series a monetary union, characterised by a union central bank and a single currency, was taken as the format of monetary integration that African regional integration arrangements are aiming for. At the widest geographic level an example of such a union is the continent-wide African Monetary Union, an African Central Bank and a single currency by 2028 envisaged in the Abuja Treaty of 1991. The monetary union and the single currency intended for the Southern African Development Community (SADC) in 2016 and 2018, in turn, are an example of monetary union envisaged for a regional integration arrangement.
In the first comment the two existing monetary integration arrangements in Africa, the Common Monetary Area (CMA) in southern Africa and the CFA franc zone (consisting of two regional currency unions) were mentioned. It can be argued that the CMA provides the best prospects for first seeking and then expanding the membership of the monetary union. Therefore, in this, the final instalment in the series, brief attention is given to the transformation and expansion of the CMA as a driver of regional integration in SADC.
The CMA has South Africa, Lesotho, Namibia and Swaziland as member states. The arrangement operates in terms of the Multilateral Monetary Agreement (MMA) and three bilateral agreements between South Africa and Lesotho, Namibia and Swaziland (LNS) respectively. The South Africa rand, issued by the South African Reserve Bank (SARB), circulates as legal tender in all four member states, in LNS alongside each country’s national currency, issued by its central bank, which is legal tender only within the specific country. As travellers in the region will know the LNS currencies, although not legal tender in South Africa, are increasingly being accepted by traders in the South African border towns.
A review of the technicalities and legal aspects of the CMA’s operations falls outside the scope of this brief comment. Suffice it to note that the rand serves as the anchor currency in the area, with the currencies of LNS fully convertible into rand at par. The SARB is principal monetary authority and hence responsible for monetary policy in the area. An important facet of the CMS’s operation is the independence of the SARB, being one of the few central banks in the world that has its independence and primary objective of protecting the purchasing power of the currency it issues, enshrined in the Constitution of the country, which happens to be the largest and most developed economy in the region with a currency that can be regarded as Africa’s only hard currency. For LNS the loss of dependence in monetary and exchange rate policy is presumably compensated by the stability offered by an anchor to a stable and tradable currency, as well as the benefits of being integrated into the South African money and capital markets and the absence of exchange rate risk, both factors that favour cross-border investment.
Monetary union for the CMA will require two crucial developments. The first is the establishment of a union central bank and the second is the introduction of a single currency for the union. The transition to monetary union will take place in two phases.
During the first, the preparatory phase, the four national central banks will have to be prepared for their transformation into subordinate institutions, which for the SARB will be the most difficult exercise, including changes to the Constitution of South Africa. Simultaneously, the ground will have to be prepared for the establishment of an independent union central bank. This will require intensive negotiations between the member states, with perhaps the most sensitive issue being the question of voting rights at board level and in strategic operational committees such as a monetary policy committee. It is unlikely that South Africa will agree to an equal weight in voting rights for each member state. A fortunate product of transforming an existing monetary integration arrangement is that convergence of inflation rates and exchange rates will not be required of the member states during the preparatory phase. The countries involved already share a remarkable degree of convergence of inflation because of the CMA, with LNS currencies linked to the rand at par.
The preparatory phase will be followed by a transitional phase during which the national currencies will be withdrawn and the new union currency phased in. Simultaneously, monetary control functions will be transferred to the union central bank.
Once the monetary union has been established and is operating smoothly new members can join, provided that they meet the requirement of macro-economic stability and convergence. In the case of the CMA-turned-monetary-union the first candidate to join could be Botswana, who left the CMA (the Rand Monetary Area as it was then known) in 1976 to pursue its own independent monetary policy and exchange rate regime. In fact, with the pula so closely tracking the rand since the adoption of the crawling peg system in 2005, and with its inflation rate not far from those of the CMA member states, Botswana could imaginably join the current members of the CMA in establishing monetary union. SACU will then be a customs, excise and monetary union and hence the most advanced regional integration arrangement on the African continent, which within the spirit of variable geometry could become the nucleus of deeper and expanding integration within SADC.
Identifying these broad steps appears to portray transition to monetary union as a simple and easy process, and perhaps mere wishful thinking. There is no denying the fact that it will require difficult decisions and an excruciating process of negotiation and planning. The first hurdle might be the most pivotal one and that is a decision by LNS to sacrifice the national identity embodied in their own currencies and willingness by South Africa to forego a substantial slice of policy independence. South Africa is the dominating economy in the region and once the 2002 SACU Agreement is fully implemented and a regional central bank is in place, the country would have transferred a substantial chunk of policy sovereignty to supra-national regional institutions.
Given the current discourse in South Africa on the need for new thinking on trade and industrial policy, and the desire in some circles to have the mandate of the SARB reviewed to allow interest rate and exchange rate policies to encourage faster job-creating growth, it is difficult to imagine that this policy independence will easily be sacrificed.
Tell us what you think...
Special Features
An update on the WTO Ministerial Conference – 30 November – 2 December 2009
Four years since the last Ministerial Conference in Hong Kong, WTO members gathered in Geneva for a long overdue Ministerial Conference. In his opening speech Director General, Pascal Lamy, appealed to members to be united and reaffirm their strong determination to conclude the round by 2010. He noted that political reaffirmation was not enough to ensure a successful conclusion of the Doha round, but practical and concrete action was required to close the remaining gaps following eight years’ work on the negotiating table. Read more here...Discussion Note: Policy space in services negotiations
Paul Kruger, a tralac Researcher, discusses Policy space in services negotiations: A previous hot seat comment (The domestic reflection of GATS commitments, 19 Augustus 2009) alluded to the discrepancies between current domestic realities and the international services commitments contained in the GATS schedules of WTO Member States. Arguably much of this problem stems from the lack of progress made at the multilateral level. Countries are reluctant to undertake binding unilateral commitments because of policy space considerations and possible leverage in later negotiations. However, this leverage is not only important in multilateral negotiations but also in bilateral and regional negotiations. Read more here…Monitoring Trade and Climate Change
Follow this link to previous articles…tralac Media Library
- View an interview by Dr Patrick Low, Chief Economist of the WTO. He comments on the impact technology will have on climate change and the success of Kyoto...
- View all previous interviews here...
Weekly Customs, Excise, Tariff and Trade Remedy Summary Notification
- Download the notification here.
News
Doha progress only with new market access, says US
The seventh ministerial meeting of the World Trade Organisation (WTO) is transformed into what a trade official of an industrialised country described as the “substance-free zone” due to intransigent positions adopted by the United States.
WTO Ministerial: Members exchange views, banana deal takes shape on margins
No single theme dominated the second day of discussions at the World Trade Organisation’s (WTO’s) Ministerial Conference currently underway in Geneva. The meeting’s main scheduled event, a working session to review WTO activities including the Doha Round, saw ministers largely repeating well-rehearsed views.
Mercosur, India and SACU begin trade and investment talks
Brazil has this week launched a round of negotiations in Geneva to further liberate trade between the South American trade bloc Mercosur, India, and the Southern African Customs Union (SACU) with the aim of ratifying south-south cooperation as global negotiations in the framework of the Doha Round remain stalled.
Developing nations urge Doha Round conclusion
Over 100 developed countries on Sunday called for an “urgent” conclusion of negotiations for a world trade liberalisation pact, a day before a key ministerial conference of the World Trade Organisation (WTO).
Arusha meeting key to breaking deadlock over EPA
Representatives of East African Community (EAC) governments as well as the private sector hope to use a two-day meeting beginning in Arusha on Friday to break the deadlock with the European Commission (EC) over the Economic Partnership Agreement (EPA) negotiations.
‘Group of 22 close to tariff cut deal’
A group of 22 developing countries are close to an agreement on cutting tariffs that could be signed when ministers gather in Geneva, Switzerland next week for a World Trade Organisation (WTO) meeting, diplomats told AFP on Thursday.
SA, China trade triples
Africa’s trade with the world’s four largest emerging markets – Brazil, Russia, India and China (the BRIC countries) – has grown from US$20.3 billion in 2001 to about US$162 billion in 2008, the Industrial Development Corporation (IDC) said in an economic report on Wednesday.
Africa steps up merger of three top trading blocs
Countries across Eastern and Southern Africa have stepped up plans for the establishment of Africa’s largest economic bloc with the opening of negotiations that may culminate in a Free Trade Area (FTA) spanning Cape to Cairo by May 2010.
Events
Trade data analysis week held in Pretoria, South Africa, 16-20 November 2009
Read more here...Updated: tralac Annual Conference 2009
The tralac Annual Conference 2009 Report and audio recordings of speakers' presentations are now available. Click here to access the Annual Conference 2009 page on tralac's website.Publications
Measuring the gains from currency union membership in southern Africa
New working paper: Measuring the gains from currency union membership in southern Africa by Johan Fourie and María Santana-Gallego. African countries have latched on to growing empirical evidence that creating a currency union may result in large trade gains. This is based on the belief that lower transaction costs would lead to large increases in intra-regional trade volumes, augmenting growth. Yet there is growing evidence that not all countries may benefit from entering a currency union. This paper is an attempt to measure the gains from trade that are realised when entering a currency union. Using a standard gravity framework, we find that countries that decide to give up their currency and adopt an existing one or create a new common currency area stand to benefit significantly from a shared currency. However, these benefits are greater for a select few and the gains in terms of trade will depend on how open the country is and the intensity of trade flows with the other members of the currency union. Read more here...Anti-dumping on TOFA: Hopping a country too far?
New working paper: Anti-dumping on TOFA: Hopping a country too far? by Gustav Brink, a tralac Associate. The circumvention of anti-dumping duties has given rise to significant discussion on the topic in the World Trade Organisation. At present the WTO Anti-Dumping Agreement does not contain any anti-circumvention provisions and it is up to each country to regulate the use thereof. South Africa’s Anti-Dumping Regulations provide for several different forms of anti-circumvention, including country hopping, i.e. where an importer switches supply from a producer in one country to a related producer in a third country as a result of the imposition of preliminary or definitive anti-dumping duties or the initiation of an investigation against the exporter in the first country. This is not recognised as circumvention by any other country. Read more here...Safeguards and trade remedies in the SADC and ESA Economic Partnership Agreements
New working paper: Safeguards and trade remedies in the SADC and ESA Economic Partnership Agreements by Prof. Gerhard Erasmus, a tralac Associate. This paper discusses the “Trade Defence Instruments” in the Economic Partnership Agreements (EPAs) currently being negotiated between the European Union (EU), on the one hand, and different configurations of ACP (African, Caribbean and Pacific) countries on the other. These “instruments” cover remedies against unfair trade practices (anti-dumping and countervailing measures) as well as safeguards. ACP concerns about infant industry protection, food security and agriculture are also on the agenda. Read more here...AGOA.info
Trade data to September has been updated
All AGOA data has been updated on AGOA.info to include September 2009 trade flows. These statistics reveal that aggregate trade between AGOA eligible countries and the US has declined from $50bn to $24bn in the year to September, compared to last year. Much of the decline is due to much lower oil exports from Africa. However, even non-oil exporters like South Africa have seen a decline in US-bound exports, down 42% year-on-year to $1.8bn. While virtually all SADC countries have seen a contraction in exports, one country stands out: Malawi has more than doubled its exports to the US to $53mn. See aggregate export data here, and AGOA exports at this link.
Other AGOA data includes disaggregated bilateral trade profiles for each AGOA country individually (as well as within various regional configurations), aggregate bilateral trade, preferential trade under AGOA / GSP and sectoral data from AGOA-eligible countries by value and as a proportion of US imports, as well as sectoral “new AGOA” and “GSP AGOA” data. Textile data is available by value and by volume. Clothing export data to August 2009 shows exports of clothing are down 12% year-on-year (clothing exports made from third country fabrics are 9% lower in the current year). Export data is available at this link .
Proposed amendments to AGOA legislation
Bill 4101 was introduced by Sen. Bill McDermott a few days ago, and has been referred to the US Committee on Ways and Means. It is also known as the "New Partnership for Trade Development Act of 2009". Visit AGOA.info for further details.
The recently completed most recent quota period commenced in October 2008 and terminated in until September 2009. October 2009 should be published shortly (official release date is 13 November). Quota utilisation for the full year was 15.7%, and 30.5% under the LDC sub-quota (applicable to the use of third country fabrics). For the new quota year (October 2009 - September 2011, the fill rate for October was 1.2% and 2.33% under the LDC sub-quota. A new overall quota has also been set: details at this link.
Bilateral and regional trade profiles
Bilateral US-Africa trade profiles on a country-by-country basis have been updated. Follow this link to individual country profiles as well as various regional country configurations. Examples include:
South Africa , Lesotho , Botswana , Namibia , Swaziland , BLNS , SACU , SADC , etc.
Trade acronyms and terminology
Visit AGOA.info's alphabetically-ordered database of trade-related acronyms and terminology
Latest AGOA news
- Ethiopia - TPLF Owned textile factory begins exporting product to US
- Madagascar: Further AGOA eligibility depends on political change
- Botswana: 5000 workers lose jobs as textile factory closes down
- Nigeria: Federal government set to revive textile sector
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- Did you know? You can search AGOA.info's news archive (now containing over 1,000 articles) through the built-in search functionality.
- Read these and other AGOA-related news articles in AGOA.info's news area, which is continuously updated with articles sourced from a wide range of African and foreign publications.
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