“We shall require a substantially new manner of thinking, if mankind is to survive.” – Albert Einstein
“The boom … creates out of itself an objective situation, which … makes an end of the boom, leads easily to a crisis, necessarily to a depression, and hence to a temporary position of relative steadiness and absence of development.” – J. Schumpeter
1. Introduction:
The 1929 depression started in the USA and it evolved into a global economic crises. The 2008 recession started in the USA, like a contagion it has now engulfed the whole world.
The great depression started with a stock market crash on October 29, 1929.
The Great depression continued for 10 years in the USA until the US war recovery in 1939!
In 1929 much of Africa was under the colonial yoke, except for a few countries, one of which is our own precious motherland, Ethiopia, which kept alive the hope and possibility both in time and history the resistance and liberation imagination of Africa and all colonized peoples both in trying and non-trying transitions.
Today many African countries are politically independent and economically under heavy donor influence.
Views are sharply polarized regarding what the impact of the current recession, which is very unlikely to ebb in the next few years, would be on Africa’s development and opportunity. Some say Africa’s marginalization is paradoxically a condition that may be more insulating rather than exposing Africa to danger. Others say marginalization is likely to make the recession, as it works itself out through the economic cycles across the globe severe and punishing on Africa. Still others claim that the global recession may not have negative impact on the short term, but is likely to have long-term negative consequences especially in regions of the world where the number of the poor has been growing as in Africa.
2. Learning from the Great Depression for dealing with the 2008 Global Recession
The current global recession is likely to impact adversely on Africa despite claims that Africa’s relative marginalization is a blessing in disguise. It is precisely because Africa is marginalized that as time goes by the recession will severely affect it.
Whatever one says, many African economies will have to lower exports to the economies undergoing financial crises.
They will face constraints to earn foreign credit.
They will face problems in attracting capital flows and foreign direct investment.
Their foreign exchange will be lower as a consequence of weaker demand and even lower prices for their commodities.
They are likely to face unsettling fluctuations in their currency specially those linked or pegged to the US dollar, the Euro and other daily fluctuating currencies.
In the short term, the key impact of the global recession is the likely reduction in world demand for Africa’s largely agricultural and mineral exports. Even the price of oil has gone down to $48 a barrel now!
The other key impact is the difficulties the recession induces in controlling macro-economic policy. The up and down swings of the markets and currencies make it harder for countries specially the vulnerable ones to maintain macro-economic stability.
In the 1929 great depression China was on a silver standard. Whilst those economies in the Gold standard suffered severely, China, though affected as well, was largely able to maintain relatively a stable currency during the depression.
I was recently in Bamako, Mali flying from South Africa. I was surprised that that the South African Rand was not one of the currencies the CFA is used to exchange with. I could not use the Rand. But I was able to use euros and dollars.
When I speak that Africa needs one currency, many people snap back and say this is pie in the sky. I say which is pie in the sky, 50 or so currencies that are weak, or one currency, if forged, that is going to be strong? Those who wish to remain with fragmented economies and currencies are in the camp that has made Africa the loser over the last 50 years of post colonial freedom.
For Africa to secure agency in macro-economic policy, it needs a unified currency. Without developing such a currency Africa will always be a victim when the global economy moves from boom to bust, up and down and swings with cyclical movements.
3. What Kind of Monetary system for Africa?
A monetary system for the making of free Africa requires a substantially different approach from the process of monetary integration within the EU.
Unlike the European monetary approach to create an optimal currency area, an African monetary system is central to forging Africa’s emancipation. An African currency union will reverse the history of Africa’s grand oppression into an autobiography of liberation. It is thus a qualitatively different system differing in purpose, functioning, objective and intention from the pattern of monetary union of Europe where the issue is to unify fairly well functioning currencies in order to exploit the advantage of an enlarged market.
Africa’s currency union is part of the overall struggle to mobilize finance internally in the effort to inter-connect states, peoples, communities, regions, economies, households, families, individuals and markets across Africa. Once Africa has an integrated economic and political system, it would create the necessary condition to forge a real partnership with all types of economies and regions of the world.
A unified African currency must be made stable so that those engaged in transaction can benefit without inflation and/or deflationary pressures. Acts of discrimination and restrictions on legitimate or lawful transactions in all markets must be forbidden.
The trade system within Africa must be open, free and fair. Leading members of the AU community must guarantee and underwrite the smooth and stable functioning of an African currency. These members can be selected from the regions based on consensus and consent.
The transition from the state-based currency system to the African monetary system must be based on lawful, non-dislocation and evolutionary strategy. In addition, it must be voluntary and based on persuasion, consent and the pursuit of common objectives.
The transition requires that states be willing and committed to co-ordinate monetary, interest and budgetary policies amongst themselves with an understanding that currency integration adds to their sovereignty rather than subtract it.
The dollar has an overall overarching influence in the continent today. In some countries, it is freely used as a means of exchange. If there is no unified currency union, Africa will be a battleground between the Euro and the dollar. The Yen may not be as influential as the Euro and the dollar in Africa, but it is in the wings.
These three currencies will compete in Africa and the AU must prepare the ground to found a currency union to protect Africa’s developmental aspirations.
4. The Transition needs to be smooth and not chaotic
An African monetary union is one important way of moving closer to making the Pan-African vision a reality. The necessary conditions for making moves towards a Pan-African monetary union include the following:
Making or going for a smooth transition of power from France and EU to integrate the CFA frank zone to the African Union without breaking up the common monetary area. In addition, to upgrade, adjust and persuade the states in the Rand monetary area and other bilateral and multilateral efforts such as the East African common market to join the all-African monetary system.
In other words, Africans must find ways of making smooth and non-chaotic transitions from regional monetary areas to an all African monetary system.
– A new liquidity creating mechanism baccked by Africa’s mineral resources and African Union confidence-building measures to support an African currency to circulate freely in the member states.
– A determined effort to re-link with thhe IMF, countries like France or the European Union on their clear acceptance of Africa’s national developmental priorities and not Africa’s continued indebtedness to them by preventing them to take a leading role in designing an all-African currency union
– To negotiate the par value amongst thee Euro, the dollar and the African currency for the purposes of managing Africa’s foreign trade in the service of African development with the rest of the world.
– To control the authority of adjustmentt of the African currency to the dollar and Euro in the AU.
– To create and manage a dual currency ssystem where like the Chinese Yuan, the African currency is inconvertible by becoming a unit of account and means of payment for stimulating inter-African trade and investment.
There should be a build up of foreign reserves backed by mineral wealth and the growth of Africa’s labour productivities from which a foreign transaction account can be kept for the purposes of trading outside Africa.
The key importance of a currency union and an inconvertible African currency is to make it possible to raise domestic financing by enlarging the domestic market and stimulating a comprehensive and an integrated development of the continent.
Africa’s monetary union is not conceived to join together existing currencies but to overcome the weaknesses of the admittedly weak and fragmented existing currencies.
The monetary arrangement can be designed in such a way that Africans consume the products they produce, and discourage them from consuming luxury items for the few who own foreign dollars and Euros.
Much of politically independent Africa did not have the political will, in spite of appreciating the need to do so by a number of the first post-colonial leaders of the time, to create a monetary union in the 1960s at a time when the moment provided the opportunity to undertake such bold steps.
The question is, will the current 2008 global recession serve as a wake up call and spur African leadership to develop the collective political purpose to take risk in the interest of Africa? The positive thing for Africa is, if indeed, this recession provides the missing wake up call to go for what would enhance African self-empowerment, self-respect, self-confidence and dignity. Incidentally, the positive thing for Africa from the success that a brother is in the White House is to learn that Africa can also do it by uniting and achieving independence and agency. It is not good to expect a brother in the White House to save Africa, not least expect to donorise Africa or turn Kenya into the 51 member state of the USA, as some exited people in Kenya called for! That is neither fair on a brother and nor on Africa!!!
5. Concluding Remark
The medium and long term impact of the global economic and financial crises will be severe on Africa. To say that marginalization will save Africa is plainly inaccurate and myopic if not stupid entirely.
Africa must learn to do what it has not been able to do over half a century, that is think, learn, feel, do and behave with coherence to create an economic, financial and currency integration of the African economy.
The picture of Africa conveyed by various international institutions is rather grim and depressing. 35 of the 49 least developed countries are in Africa. It is said that nearly 70 % of the African population live on less than 2 dollars a day. It has been reported more people are falling in poverty as a consequence of this global recession. It has been alleged that more than 26 million people are afflicted with HIV/AIDS. It has been reported that approximately 2.5 million Africans die of HIV/AIDS. One million people a year die of malaria. More than 40 % of the African population lacks safe drinking water. Health care and education critical for changing ill being into well being and productive power are reported to be woefully inadequate. (See Mohammed Hassan, World Apart Together, Nature (International weekly journal of Science), 456, 6-8, 30 October 2008)
Given such a picture, the way out is not celebrating Africa’s marginalization. The hypothesis that the African economy as a region has not been fully integrated is a help to avoid being caught in the falling banks and falling stock markets is unthinking, facile and twisted. In reality the fact that Africa is not fully integrated as an economy ‘sui generis’ is likely to impact adversely on each of the fragmented and dependent entities.
Finally, the way to overcome fragmentation and dependence and being caught in falling into periodic financial and stock market crises is for Africa to create a monetary union and an African currency that we have dubbed ‘AFREE.’ The latter currency is necessary to create producer user interaction across the continent to make Africans consume what other Africans produce in a large and dependable and independent African economy free from any old or new rising imperial powers and also to secure insulation from the rogue credit crises swings that mirror the episodic business cycle often endemic to the functioning of the world economy now or in the future.
China had the Silver standard in 1929– remained largely untouched by the Great depression. It has now a non-convertible Yuan that keeps her affected less though its economy is more integrated today!
Africa must learn to go for what would work, establish a unitary currency as part of the grand effort to win its agency to manage its own united macro-economy!
Mammo Muchie is NRF/DST Research Professor at IERI, TUT, Pretoria, South Africa, and Professor and coordinator of DIIPER at Aalborg University in Denmark and chairman of the Network of Ethiopian Scholars (NES).
