The development of the Southern African Development Community (SADC), like many regional integration arrangements in Africa, has a clear roadmap: a fully operational free trade area by 2008, a customs union in 2010, a common market in 2015, monetary union in 2016 and the introduction of a single currency in 2018.
This corresponds to the conventional model of integration as a linear process of consecutive stages in the integration of goods, labour and capital markets and, finally, monetary and fiscal integration.
While the appropriateness for Africa of dedicated adherence to the linear model should be questioned, a more immediate issue is whether monetary union is a viable and proper objective.
Monetary union and a single currency seem to be a popular idea, often mooted as a desirable goal.
It derives its popularity from the experience of the European Union and the introduction of the euro and the renewed emphasis on the political integration of Africa. After all, a United States of Africa cannot be envisaged without a common currency for the integrated area.
Economic integration is driven mostly by political forces but, even if a regional integration arrangement is considered to be a political construct, the fact remains that it is composed largely of economic building blocs. This means that economic forces and realities often have a decisive influence on the success of integration.
Monetary integration has potential benefits.
Primarily, it encourages intra-regional trade by lowering the transactions costs of trade as well as macro-economic stability across the region because of the implied common mone- tary policy. It can also serve as an agency of restraint, by preventing participating states from adopting policies that could raise levels of macro-economic and political instability.
However, there can be a downside to monetary integration.
In evaluating the net benefits, the general outcome of regional integration needs to be considered. Integrating markets means that participating countries sacrifice sovereignty in elements of policymaking. If member states integrate their monetary systems and adopt a single currency, the participating countries individually, as sovereign nation states, lose control over two pivotal policy variables, the rate of interest and the exchange rate. A regional central bank is established that now determines interest rates for the common currency area.
Furthermore, a single currency brings about a single exchange rate for the region against other currencies.
The exchange rate will, therefore, not adapt to the specific macro-economic conditions in a participating country. For example, if a member state experiences a sharp fall in the price of a dominant export commodity, such as copper, the exchange rate, assumed to be determined by market forces, will in response not depreciate if circumstances in the common currency area dictate otherwise.
Sacrificing national sovereignty over the rate of interest as a policy target and the exchange rate as an adjusting mechanism, and often a policy target in developing countries, is not the route to go for the SADC.
This is a group of economies characterised by relatively low levels of intraregional trade, a lack of economic diversification and exposure to different and unforeseen external shocks associated with dependence on a few primary commodities. To this must be added the problem of the divergence in macroeconomic variables, which are to converge as a prerequisite for effective monetary integration.
The European experience demonstrated the importance of macro-economic convergence (MEC) as a condition for monetary union and the introduction of a single currency. MEC typically includes budget deficit ratios, inflation rates, public debt ratios, external balance (often the current account), exchange rates and interest rates.
In the EU, MEC as condition for admission to the European Monetary Union focused on convergence in five areas: inflation, interest rates, budget deficits, national debt and exchange rates.
The SADC experience for long periods has been divergence rather than convergence. It could be argued also that external shocks and the differences in economic structures and the challenges countries face might require some divergence in these indicators in the process of adjustment.
In Europe, monetary union followed after a decades-long period of gradual movement of deeper integration by committed states. The SADC wishes to have a single currency a decade after having a region-wide, free trade area, which in itself is a target that is likely to be missed.
Adopting unrealistic roadmaps, especially given the lack of political commitment to integration arrangements in the region, can be a constraint on regional development through integration. Bold, but unfulfilled, expectations within the confines of the linear integration model distract attention from the real deterrents to regional integration and development, such as supply side bottlenecks (labour skills, infrastructure, investment and entrepreneurial development) and the many non-tariff barriers to regional trade, which vary from inadequate transport and communication links to a lack of harmonisation in border and customs procedures.
The paradigm of African regional integration needs to be reconsidered, with more attention given to results than process and formal models.
Colin McCarthy is a professor emeritus of economics at the University of Stellenbosch and an associate of the Trade Law Centre for Southern Africa