We do not need a dominant currency, we need one with value
On the occasion of the opening of the Southern African Customs Union headquarters in Windhoek, perhaps the time has come to revisited our umbilical attachment to the South African currency. In our endeavours to integrate the region, much emphasis is placed on the so-called institutionalisation of integration, but I also believe that part of this process will be to redefine the roles of all the participating players, including their over-dependence on the Rand.
The only question is: Are there persons or groups of persons in Namibia who have the stomach to start a meaningful debate on what our Rand convertibility means for us? Given the extreme asymmetry between the South African economy and all other economies in the region, even if one put them all together, it will not be an easy task to confront the elephant to change the dispensation.
Deutsche Bank released a report this week on South Africa’s latest drive to entice the international capital market back to SA government bonds. The results were dismal and the august bank thinks the Rand is going to go deep down the abyss.
Compare this to the 3-day Namibian roadshow in Europe which had a far more successful and positive outcome in the form of a quick, favourable US$750 million Eurobond.
Similar to us but two weeks earlier, the South African government also presented a mid-year budget review.
But unlike the Namibian budget review, the SA one proved to be a revelation, or should I say a disaster. What many analysts suspected came into the open on 22 October when the South African Minister of Finance had to concede to his voters, SA is probably heading for default as present growth prospects are south of 1.5% for the year. South African bonds are also on the verge of being relegated to junk status.
Again, compare their position to the Namibian fiscal situation and it seems the two countries are on different planets.
Meanwhile, the Namibian economy is continually penalised through its Rand link. Were the South African economy well-managed I may be inclined to defend this link, but as long as a stooge is in charge, the investment world will not easily change its views of South Africa as an investment target in the spread of emerging market economies all vying for the same capital.
Yet, despite all the negatives, I am not proposing that we delink. I think that will be premature and unfounded. What I propose is that we start a meaningful, local debate that dissects our attachment from all possible angles, and that we then plot a new map for the future.
At this stage, trying to go it alone, will be futile, our currency is simply too small, but remaining linked to the Rand is also detrimental in many aspects. So where is the solution?
I still believe the long-term solution lies in a single trade currency for the Southern African Development Community. I am not proposing an African Euro, I think the perils are clear, and the lack of local capacity will see it founder if it hits headwinds like the Euro.
Also I am not proposing that any of the regional jurisdictions suspend their own currencies except for those who have already so through the delinquent antics of their senile leaders.
The SADC region needs a convertibility platform that is accessible to all its members without ceding control over their own currencies. Such a unit will immediately enlarge the basket by an exponential factor, and it will provide a single conversion point for any international transaction. Of course, it will require an institution like a SADC trading bank, or at least a SADC clearing house, well-capitalised, with its own foreign reserves to ensure international liquidity, and with its own intra-member conversion mechanism, to ensure local liquidity.
Finally, the SADC trading unit does not need to be the Rand, nor does it need to be a paper currency in circulation. It is arguably one of the biggest obstacles that will have to be ironed out but it will be a true test for the ability of our politicians to put a structure like that together to cover the whole region. Of course, with a trade institution like that all the subsidiary jurisdiction will require a competent court to settle disputes, so while we are sweating to establish the structure for a SADC trade currency, we can start by re-instating the SADC Tribunal.