South African Reserve Bank Governor Tito Mboweni says much can be learned from the European Union as the Southern African Development Community (SADC) attempts to create a single monetary union for the region by 2016.
Speaking in Johannesburg on Tuesday, Mboweni said the recent experiences of the EU demonstrated that it is necessary to be strict about macroeconomic convergence criteria, which have to be written into a legally binding contract for member nations.
He also emphasised the importance of informing citizens at all times of the various processes associated with the creation of a monetary union — “otherwise you end up with no-votes like those seen in France and Holland that destabilise the entire system”, Mboweni said.
South Africans are generally not paying attention to the development of a free trade area and monetary union within the SADC region, Mboweni warned.
“They will wake up one day and find a centralised bank,” he said.
The SADC agenda is to create a free trade area by 2008, a SADC customs union by 2010, a common market by 2015 and a monetary union by 2016 with a single currency and central bank.
Mboweni said there has to be a concerted effort by political leaders to bring the region together as well as strict macroeconomic conventions to bring the region’s economies together.
While he said that growth in the region is “fairly impressive overall” and inflation is under control, with the exception of Zimbabwe and the Democratic Republic of the Congo, economic targets will have to be met to achieve the proposed timetable.
These include reducing inflation in all SADC countries to single-digit figures by 2008 and to 5% or less by 2012. The budget deficit of SADC countries has to be 5% or less of gross domestic product by 2008 and 3% or less by 2012. This is to force governments in the region to strengthen their tax collection and stop reliance on central bank borrowing, Mboweni said.
He said countries that do not meet these targets will automatically exclude themselves from the monetary union.
Mboweni said the Common Monetary Area, consisting of South Africa, Lesotho, Swaziland and Namibia, could “form the basis” for the creation of a SADC monetary union.
Currencies in the SADC region “will eventually have to converge around the South African rand and Botswana pula”, he said. “The biggest economies in the region must play the biggest role. There is nothing dishonourable about exercising your power.” — I-Net Bridge