What you need to know:
- Analysts say while Ruto’s proposal was sound, it was unlikely to be implemented given the continent’s current level of economic development
Arusha. African countries have been cautioned about a suggestion by President William Ruto of Kenya, urging them to ditch the US dollar.
Analysts say that although the idea was good, it was hardly practicable given the current level of economic development on the continent.
“It is a good idea. The concept is good. But before we jump on that train, we have to develop our economies,” said a business consultant.
He said the suggestion by the Kenyan leader came at a time when African countries relied heavily on transacting business in the US currency.
“Before abandoning the US dollar, we have to look at the fundamentals of our economies. Why are we heavily reliant on the dollar?” asked Japhet Kashamba.
Early this week, President Ruto asked the African leaders to take the first steps towards ditching the globally bullish US dollar.
This, he said, can be done by signing up to a pan African payments system to facilitate trade within the continent; technically ditching the dollar.
But Mr Kashamba said the suggestion will have to wait until African economies are freed from the grip of major economic giants like the US.
“We have to develop our macroeconomics so that we can move to the stage of developing our own currency,” he told The Citizen.
He said it was the World Bank and the International Monetary Fund (IMF) that pushed up the dollar to become a leading global currency.
“This means our economies are still dependent on the major powers,” Mr Kashamba said, citing manufacturing and agricultural productivity as key to reducing the dependency.
Mr John Bosco Kalisa, the executive secretary of the East African Business Council (EABC), emphatically said the suggestion was long overdue.
“Our currencies (in Africa) have lost value because they are not supported by productivity,” he said when reached out for comment. However, he cautioned that before Africa begins a journey to a single currency, “we need to enhance our level of productivity and investments within our economies.”
Africa has to address macroeconomic fundamentals related to exchange rate adjustments as well as monetary and fiscal policy harmonisation.
He stated in the affirmative; “In our view, there is a lot to be done before we move into an integrated African single currency economy.” Mr Kalisa, who has lately defined himself as a voice for EAC trade, affirmed that the continental single currency envisioned by the Kenyan leader was generally welcome.
It would enhance the implementation of the African Continental Free Trade Area (AfCFTA) often impacted by high costs of currency convertibility.
It emerged yesterday that the idea of ditching the US dollar to pave the way for a single currency for Africa was once floated by the former Libyan leader Muammar Ghaddafi.
He made the suggestion at one of the summits of African leaders in the final years of his 42-year rule in the North African country before he was slain in 2011.
“He wanted Africa to be more powerful with its own currency and not dependent on the currencies of the western powers for trade transactions,” said Mr Aafez Jivraj, a tour operator based here. However, the MD of Tanzania Private Select Safaris maintained that he does not foresee a situation under which Africa would ditch the greenback, at least for now.
“We are used to the dollar, such that it is the world’s number one currency”, he said, noting that even the Euro is not used by all countries in Europe.
Mr Jivraj said most tour operators and tourism-related businesses in Tanzania would embrace a single currency for Africa to save on currency convertibility costs at the borders.
But according to him, most of the payments tour firms in Tanzania receive, even from fairly strong economies like China and Japan, have to be converted into dollars.
Officials of the regional bodies based in Arusha maintained that the single currency initiative for Africa has to begin with the regional economic communities (RECs).
However, they should be wary of smooth takeoffs, citing the single currency economy for the East African Community (EAC), which has not taken off since it was initiated years ago.
Dr Ruto, who has been focused on African continental affairs in recent months, floated the idea when he spoke to his government officials and the Kenyan private sector captains.
Sources hinted, however, that his strong stance against continued use of the bullish US dollar may have been driven by the scarcity of the greenback in his country.
The shortage of the greenback has worsened the economic woes of Kenya, the largest economy in the EAC, which is now also grappling with food shortages and the impact of the recent drought.
Kenya suffered an acute shortage of fuel, which the oil marketers largely linked to delays in releasing cash for fuel subsidies, creating cash flow challenges, while the government accused the firms of hoarding the commodity. Earlier this month, the President said Kenya last year ran an artificial exchange rate market that caused a biting shortage of fuel, resulting in rationing of the essential commodity, contradicting the governor of the Central Bank of Kenya, Mr Patrick Njoroge.
“We discovered there wasn’t a fuel [shortage] problem. It was a misdiagnosis. The problem was economic and much more of a dollar problem. There was the issue of fuel that had come, but the oil marketers could not find the dollars to go and buy it because the government was maintaining an artificial rate,” Dr Ruto told a media engagement session on May 1.