Until the end of last year the Southern African Development Community (SADC) had on its home page a moving bar (now removed) that indicated the agreed timelines of SADC integration which would lead ultimately from a customs union in 2010 to a European Union (EU) lookalike monetary union and common currency by 2020.
After the year of the PIG (Portugal, Ireland and Greece, which is rapidly and dangerously developing into the years of the PIIGS, with Spain and Italy thrown in for good measure), the idea of a currency union, especially emulating the EU model, agreed to by SADC, does not look terribly clever.
In Southern Africa we are beginning to have our version of the year of the PIG, with Swaziland receiving a substantial bail-out of R2.4-billion to help it to meet its own deficit, caused by the pro-cyclical decline in revenues from the Southern African Customs Union (SACU), which make up more than 60% of the government’s revenue.
But it is by no means obvious that Pretoria has either the will or the depth of pockets to play Germany in Southern Africa. Nor should it have to, as the current crisis in Swaziland was predictable — revenues from the customs union are received two years in arrears, so Swaziland is feeling the effects of the 2008/2009 crisis now. It should have taken measures in the past two years for this predictable shock, but it did not.
Swaziland, despite the public image of King Mswati, is not the vision of financial profligacy — its government debt as a percentage of GDP stood at 16.7% in 2009, half the sub-Saharan African average. But what is exceptional is the amount spent on wages and salaries of public servants, which is 17% of GDP, the second highest in Africa. At the same time, 80% of its population, about twice that of South Africa lives below the poverty line of $2 a day.
The governor of the Central Bank of Swaziland, Martin Dlamini, said in late May that he would not deal with Swaziland’s escalating debt by devaluing the lilangeni, the local currency, which is on par with the rand. This is an option the finance ministry in Athens would love to be able to have as it would also make its exports more competitive and create a basis for economic recovery. But Mbabane, like Athens, is the victim of what Keynes called ‘an immutable past” — it has parity with the rand, for better or for worse, and Athens has the euro, which, at this point, looks like ‘for worse”.
Under the terms of the Multilateral Monetary Area (MMA), the post-apartheid replacement of the rand area, which includes Lesotho, Swaziland, Namibia and South Africa, Swaziland cannot leave the MMA and devalue its currency without giving a year’s notice. But to give notice would cause an instant sell-off of the lilangeni as local depositors moved to safer currencies.
The MMA is likely surviving the current shock, but when it’s time to adjust the SACU revenue sharing formula in coming years its future is by no means obvious.
The need for currency flexibility to address the macroeconomic issues that will face Lesotho and Swaziland from the SACU reform may mean that the rand area may be one of the first victims.
It took a beating when Botswana left it in 1976 and created its own currency, the pula. The decision was very much political but it would have been necessary eventually for Botswana to deal with Dutch disease, which requires exchange rate adjustment when domestic inflation surges as a result of its huge diamond revenues.
These are the views of Roman Grynberg and not necessarily those of the Botswana Institute for Development Policy Analysis, where he is a senior research fellow.