The common problem being faced by almost all African countries is shortage of foreign currencies in the country to fund their imports from other countries. These transactions have to be done in internationally accepted currencies like Euro, dollar, Franc or Pound. From oil-rich Nigeria to Niger, there is an acute shortage of foreign currencies, which has led to a shortage of essential goods and spiraling prices. Countries like Zimbabwe, the currency crisis is casting shadows on the governance apparatus. This has forced the country to take several steps in recent days to insulate the economy from violent currency fluctuations, which forced many businesses to pull their shutters rendering a number of people unemployed.
The good thing is that African countries as a group has started taking this as a generic problem. The new vision brought out by the African Union, African Development Bank and the newly formed the African Continental Free Trade Area (AfCFTA) is significant in this regard. Their main objective is to boost the intra trade among African countries and is expected to boost the GDP of all countries in the region put together in the vicinity of US$ 2.5 trillion or so. Every year, the newly formed regional bloc, billed as the largest in the world, will add US$ 30 billion to the GDP of the region. That will considerably bring down the use of hard currencies at least for rading within the region.
The other important decision is to focus on value addition of the exports from the country. A commonly quoted example is that of cocoa, coffee beans and cashew nuts exported from the African region in the raw form for a pittance, while the processed products made out of these crops are being imported at prices several notches above that. These paradoxical situations have been highlighted several times in the past; but nothing concrete has emerged. Now there is a broad understanding among the producers of a particular crop, say cocoa, not to sell their raw produce below a particular benchmark to ensure adequate returns to the farmers. This may be good in the short term. But in the medium and long term, countries can derive benefits only if they process the goods domestically. Though some baby steps are discernible in setting up processing units, there has to be a concrete policy thrust towards that regime both for agricultural goods and minerals.
One challenge that can be foreseen in the run up towards heightened intra-trade is the possible advantage of some of the relatively well-developed countries in the region, such as South Africa, Nigeria, Egypt, Ghana etc. They can sell more manufactured goods to other countries. It poses some issues. The foremost is what should be the currency for transaction within the region. If the overwhelming support is for the rand to be used as a common currency, being the strongest currency in the region, what would be the exchange rate vis a vis other currencies. If on the other hand, a common currency is to be used like in the case of Euro, it calls for a monetary union. The moot point is whether the African Union is prepared for unfurling such crucial steps?
