Alternative currency in Africa: Can it work?

By: André Jooste 

South Africa’s top 10 agricultural export products to Africa include maize, apples, prepared food and wine. 

Maize, apples and wine are also traded with other countries worldwide, such as the US and members of the European Union. South African farmers then earn in dollars and euros. 

However, South Africa’s agricultural exports to Africa constitute a declining portion of its total agricultural exports, while nearly 50% of exports to Africa are destined for countries in the Southern African Customs Union: Namibia, Botswana, Eswatini and Lesotho. 

When the other countries of the Southern African Development Community are added, these countries absorb almost 90% of South Africa’s agricultural exports to Africa. 

With Namibia, Eswatini and Lesotho, South Africa is part of the Common Monetary Area (CMA), where currencies are pegged at equal value. An advantage of this area is that the currencies are fixed and thus predictable in relation to movements in the value of the rand. 

However, the depreciation of the rand against major currencies in recent years has also exposed the CMA member countries to the challenges of weak rand performance. 

The new African Continental Free Trade Area (AfCFTA) brings a new dimension to economic and trade relations. 

There are significant differences in politics, macroeconomic variables (such as gross domestic product growth, inflation rates and government debt) and institutional capacity among African countries. 

There is some doubt whether the AfCFTA will realise the trade benefits projected in the short to medium term. And the adjustment of macroeconomic policies and enabling institutions on the continent could take much longer. 

Finally, it should be noted that major commodities such as oil and grain are priced in dollars, and institutions such as the World Bank and the International Monetary Fund use the dollar for their operations. 

While de-dollarisation may seem like a good idea to escape currency dependence, numerous complex issues will need to be resolved. This is unlikely in the short to medium term. 

Jooste is a professor at Stellenbosch University’s Department of Agricultural Economics.