Africa’s Preparations for Jackson Hole

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Wednesday, August 24, 2016 9:34am /FBNQuest Research

The CBN last week hosted the 39th ordinary meeting of the Association of African Central Bank Governors (AACB) in Abuja. Discussion centred on how they can respond to the unwinding of the unorthodox monetary policies in developed economies.

These policies will dominate the gathering of central bankers in Wyoming this week. They date from the meltdown of 2008, and were initially favourable for Africa because they brought lower interest rates and a boost in investible funds.

The dramatic fall in commodity prices and its negative macro impact, however, meant that those investible funds were subsequently drawn elsewhere.

According to a CBN account of the discussions, African states can prepare themselves for the unwinding by diversifying their economies, boosting their exports and increasing their intra-regional trade. We would add the building of more solid fiscal buffers.

In our view, some of these preparations, notably economic diversification require a strong national agenda rather than a regional approach.

By way of comfort to the association, we note that the unwinding has repeatedly been pushed back.

In the long term the objective is a single currency and central bank across the continent. When we examine the challenges of the Eurozone of 19 members, not least the different levels of economic development, we can see the enormity of the task for Africa. If the Eurozone had been developed without political interference, we might think differently.

We would favour an incremental approach and look no further than the five-member East African Community (EAC). The movement of people and goods across the community’s borders was rightly the first step.

However, a ceremony on 18 July for the community to sign an economic partnership agreement with the EU had to be abandoned due to the opposition of Tanzania and Uganda. We suspect that Tanzania’s stance was driven by its feeling that the agreement would favour one member of the community (Kenya) to its detriment. The process of integration cannot be rushed.

The meeting in Abuja was attended by 27 central bank governors. Even when we allow for the fact that the 15 African members of the Franc Zone are covered by three central banks, we can see that there were some empty seats in the conference hall and that the impact of the AACB’s deliberations is therefore necessarily limited.

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