Prof. Ngotho Wa Kariuki - Collective Writings

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TWO WEEKS IN HELL ~ Inside Nyayo House Torture Chambers

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TWO WEEKS IN HELL is an inside view on how one of Kenya’s leading academics undergoes arrest and systematic torture in the hands of the notorious Special Branch Police at the genesis of the struggle for multi-party democracy in Kenya. At the time, mid-1980s, The Republic of Kenya had deteriorated to a draconian dictatorship where the rule of law and human rights had almost vanished from government, loosely referred to as the #Darkdays. Prof. Ngotho wa Kairuki, a tax expert was subsequently arrested and this is his account.

The book is a painful read yet an inspiring narrative; it speaks unapologetically describing in detail, hour by hour, day by day what he went through in the hands of his adversaries.

Prof. Ngotho went on to be detained for a number of years, maliciously tried and sentenced for a total of 9 years. This is his first installment in a trilogy of books written under that period, he was later released in 1992 when the then Moi government succumbed to local and international pressure.

Prof. Ngotho Kariuki is a tax expert. Throughout out his career he has taught, lectured and headed departments in accounting, finance and tax across Africa. He was a Dean and Head of Department of Accounting at the University of Nairobi in the 80s. He has taught in Zimbabwe (at Africa University, Mutare and National University of Science and Technology, Bulawayo), University of Namibia, University of Venda (South Africa).His last assignment was in Beau, Cameroon where he was assigned by the Commonwealth Secretariat as an expert to develop post graduate programmes (MSC and PHD) for the University of Beau (the only English speaking university among seven in Cameroon).

He is a Political and Human Rights activist and has been involved countless times in the Kenyan political arena and was one of the key political figures in the campaign to make Kenya a multi-party democracy.

In a twist of fate, in 2011, under the new dispensation he became a member of the Judges and Magistrate Vetting Board in Kenya which is mandated to restore confidence in the Kenyan Judiciary by vetting out corrupt and incompetent judges. Where one would say the hunted becomes the hunter, he finds himself on a second struggle of empathizing the importance of these values.

This book was written during the detention years but was taken away as he was released, He wrote it again during his second imprisonment 1990 and had it smuggled out, it has since remained a manuscript.

The book illustrates what happens when fundamental liberties are taken away, at a time when globally the War on Terror presses on, the importance of freedom and liberty in a multi-cultural society, by significantly portraying what a government can become when its constitution is not upheld and obeyed by the varies keepers of it.

The Book is Now Available at: www.nwakariuki.com or by sending an email to: info@myndz.co.ke or nwakariuki@gmail.com or Call & Text +254707678639 or +447855956610

TWO WEEKS IN HELL is an inside view on how one of Kenya’s leading academics undergoes arrest and systematic torture in the hands of the notorious Special Branch Police at the genesis of the struggle for multi-party democracy in Kenya. At the time, mid-1980s, The Republic of Kenya had deteriorated to a draconian dictatorship where the rule of law and human rights had almost vanished from government, loosely referred to as the #Darkdays. Prof. Ngotho wa Kairuki, a tax expert was subsequently arrested and this is his account.

The Book is Now Available at: www.nwakariuki.com or by sending an email to: info@myndz.co.ke or nwakariuki@gmail.com or Call & Text +254707678639 or +447855956610

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SYMPOSIUM ON THE UNITED STATES OF AFRICA

A PAPER ON “ECONOMIC PRECONDITIONS FOR FEDERALISM: TOWARDS A SINGLE REGIONAL CURRENCY IN AFRICA”

SUB- THEME: FEDERALISM, ECONOMIC DEVELOPMENT, SCIENCE AND TECHNOLOGY

BY

Prof. Ngotho wa Kariuki

Commonwealth Expert

Commonwealth Fund for Technical Cooperation

and

Visiting Professor of Accounting, Finance and Taxation

University of Buea, Cameroon

TOWARDS A COMMON CURRENCY

INTRODUCTION

In 1963, the African leaders led by the Pan-Africanist president of Ghana, Kwame Nkrumah formed the Organisation of African Unity (O.A.U) with the clarion call of “AFRICA MUST UNITE”. Almost forty years later (2001), African leaders transformed the O.A.U to AU (African Union) and later on formed the African Authority (again under the persistent behest of a Nkrumah disciple Mounar Gadaffi).

At the onset of the African Union, there was a commitment on moving towards a Federation and the formation of a United State of Africa. In order to achieve this aim, a number of protocols have to be signed which are a pre-condition to the effectiveness of the Union.

The main issues generally important in any union are:

1. Arrangements of a Union Government vs. the state Governments
2. The security (army etc)
3. The Foreign policy
4. The currency and monetary issues
5. The intra state travel arrangements
6. The official languages

Pre-conditions

Already a Union among the people exists as the neighbouring countries exhibit a common language among the border communities. Any two countries in Africa will have common people along the borders, similar culture, language and related to each other. Inter-marriages exist, same people decided by an artificial border. For example, Maasai on the border of Kenya and Tanzania.

Given this scenario, the discussion should be in a way of forging a more “perfect” - more formalised – Union with structures of governance.

As a historical experience, a United State of Africa may not come overnight, but once the process is started, it can move towards that Union. This means that we need to identify some hurdles which must be eliminated as we move towards the Union. The list above only highlights a few.

At their 5^th Ordinary Session held in July 2005, the Heads of State and Government reaffirmed in a Decision that the ultimate objective of the African Union is the political and economic integration of the Continent leading to the United States of Africa[1]. At the very heart of economic integration is the issue of harmonisation of currencies in Africa.

African Travel Visas Currencies

In introducing the discussion on single currency in Africa it is important to note that a lot of people who travelled to Dakar two days ago have not transacted any business because they have no local currency.

On my hands are the following currencies; South African rand for when I travel there, Kenyan shillings, which I use at home, Cameroonian franc, where I work; Senegalese franc (which I converted), US dollar, British pound and Euro. All these currencies for one single travel! In Europe, the euro is enough, in USA, the dollar is enough. So why should we carry so many currencies just to move within our continent?

The second point which we should discuss is how we can be advocating a United State of Africa yet travel VISAS are so difficult to deal with in Africa. On arrival in Dakar, we had to spend two hours at the airport waiting for an officer who was to allow us to enter because we had no Visas before starting on our journey.

How can travel and currency transactions be so difficult in Africa among Africans?

In Africa as elsewhere in the world, each country has its own currency, even though there are some sub-regions which use a common currency. Here we are talking of the CEMAC Franc Zone, the South African Rand Monetary Area, and the East African Shilling (even though it has different values in different countries).

The multiplicity of currencies in Africa is one of the serious constraints for regional economic and monetary integration which consequently puts the continent at a disadvantage especially during the time of global economic shocks such as the current global economic crisis. Sub regional blocks in the continent should aim at adopting common sub regional currencies or better still, a single currency for Africa.

Given the myriad of currencies and the consequent drawbacks on economic integration, it is imperative to think of measures for introducing one currency for the continent as a move towards the United States of Africa.

In this paper, we want to look at the monetary arrangements, travel and trade which will be necessary to enable countries to move towards the Union.

THE ROLE OF A CURRENCY

Money has since its origin served many functions; medium of exchange, store of value, unit of account, but most prominently currency exchange. Currency exchange is fast becoming one of the biggest businesses in the world. This is because of the importance of currency in trade and travel. Globalisation has also made the world one large village and movement has become faster and easier.

Given the functions of currency as listed above, the role of a currency on trade, travel and consequently, the economic development of nations cannot be over-emphasised.

Currency plays a vital role in the economic and social arrangements of any society or organisational setup. As such, for the free flow of people and goods between African people, there must be a proper arrangement about currencies. Currently, Africans use foreign currency from Europe or from the USA to travel between each other. We want to argue that a proper mechanism and arrangement can be made to allow free travel by accepting in principle that we want to move towards “One Single African Currency”.

The currency arrangement combined with trade liberalisation across the borders and freeing of visa requirements among African States, then, a process would be put in place and an additional step towards the Union.

BACKGROUND TO THE SINGLE CURRENCY DEBATE

“Africa is believed to be not only the origin of mankind but also the origin of currency. The earliest currency used in commercial transactions appeared in Egypt and Mesopotamia by the third millennium BC. Later the Chinese, and the Greek and Roman Financiers contributed to the development of modern currencies. In particular, the Chinese are credited for the earliest development of paper money. The first recorded use of paper money was in China during the reign of emperor Wu-Ti in the second century BC while the widespread official use of paper money in the country was recorded during the period 10th -15th century AD. The first paper money in Europe was issued by the Swedish bank in 1661. However, many of the units of currency in use today derive from Roman originals, and more specifically from versions of the Roman coins minted during the Middle Ages.

The modern currency (money) is the lifeblood of an economic system. It serves as the medium of exchange, a unit of account and a store of value. Apart from this, the global Foreign Exchange Market is one of the biggest markets in the world in terms size and scope. Some estimates indicate that globally, over 3 trillion US dollar currency exchanges take place every day. The trade in foreign exchange includes both spot trading and forward deliveries. The purposes of the trade include financing of foreign investments, loans; trade in goods and services, and currency speculation. Therefore, a sound and stable currency and monetary system is a prerequisite for the stability and the development of global economies. In particular, currency stability is essential for investment in both developing and developed economies”. (2)

The creation of a common African currency has long been a pillar of African unity, a symbol of the strength that its backers hope will emerge from efforts to integrate the continent. A common currency was an objective of the Organization for African Unity, created in 1963, and the African Economic Community, agreed in 1991. The project is intimately associated with the newly-formed African Union (AU), whose Constitutive Act (which was signed by 27 governments at the OAU/AEC Assembly of Heads of State and Government in Lomé, Togo, on 11 July 2000, and which entered into force on 26 May 2001 with the 36th signature) has superseded the OAU Charter and the AEC Treaty, which were the legal instruments underlying the OAU.

The 1991 Abuja Treaty establishing the African Economic Community (which became effective in May 1994 after the required number of signatures) outlines six stages for achieving an integrated economic and monetary zone for Africa that were set to be completed by approximately 2028. The strategy for African integration is based on progressive integration of the activities of the regional economic communities (RECs), which are regarded as building blocks for Africa. These stages consist of the following steps (the time that each stage was expected to take is given within parentheses)[2]:

• “STAGE 1: Strengthening existing RECs and creating new ones where needed (5 years);

• STAGE 2: Stabilisation of tariff and other barriers to regional trade and the strengthening of sectoral integration, particularly in the field of trade, agriculture, finance, transport and communication, industry and energy, as well as coordination and harmonisation of the activities of the RECs (8 years);

• STAGE 3: Establishment of a free trade area and a Customs Union at the level of each REC (10 years);

• STAGE 4: Coordination and harmonisation of tariff and non-tariff systems among RECs, with a view to establishing a Continental Customs Union (2 years);

• STAGE 5: Establishment of an African Common Market and the adoption of common policies (4 years); and

• STAGE 6: Integration of all sectors, establishment of an African Central Bank and a single African currency, setting up of an African Economic and Monetary Union and creating and electing the first Pan-African Parliament (5 years)”.

It can be seen that the proposed creation of the African common currency is left to the end, the sixth stage which was intended to occur during the period 2023-2028. However, the September, 1999 Sirte (Libya) Declaration proposing the establishment of the African Union called for shortening implementation periods and the speedy establishment of the institutions provided for in the Abuja Treaty, in particular the African financial institutions (1). These institutions are the African central Bank, the African Monetary Fund, and the African Investment Bank as specified in the Article 19 of the Constitutive Act of the AU[3].

As already mentioned above, the Organisation for African Unity (OAU) was created in 1963 with a commitment towards political and economic unity. The organisation was transformed to the African Union in 2001 in Lusaka. In August 2003, the Association of African Central Bank Governors announced that it would work for a single currency and common central bank by 2021. The AU’s strategy relies on the prior creation of monetary unions in five existing regional economic communities. These unions are:

• Arab Monetary Union (AMU) members: Algeria, Libya, Mauritania, Morocco, and Tunisia.

• Common Market for Eastern and Southern Africa (COMESA) members: Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe.

• Economic Community of Central African States (ECCAS) members: Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, and São Tomé and Príncipe.

• Economic Community of West African States (ECOWAS) members: Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.

• Southern African Development Community (SADC) members: Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe.

These regional unions would be an intermediate stage, leading ultimately to their merger, creating a single African Central Bank and currency.

CURRENCIES IN AFRICA

There are about 39 different currencies in Africa (see Table 1). Fourteen Western and Central African countries use a common currency known as Communauté Financière Africaine franc (CFA franc) managed by the Central Bank of Western and Central Africa. About 39 other African countries use individual currencies managed by their own individual central banks.

Currencies in Africa can therefore be broadly divided into two Zones: the CFA franc zone and non CFA franc zone.

The Debate of Single Currency

One cannot belittle the debate on a single currency for Africa. There are many reasons why the single currency is not welcome:

• Changing a currency is a political decision and requires political will among the political leaders

• Currency debate burden on National sovereignty and national pride. This can be seen through Britain’s reluctance to accept Euro and maintaining the pound (£).

• In some countries the picture of the Head of State adorns the currency. To accept a supranational currency would mean not having the “leader’s head on the note

• The debate should be approached with knowledge of these inpediments.

1. The Franc Zone (CEMAC and West Africa)

This is made up of fourteen (14) countries from Western and Central Africa that use CFA franc XOF and XAF respectively as the common currency. These countries are Benin (XOF), Burkina Faso (XOF), Cameroon (XAF), Central African Republic (XAF), Chad (XAF), Republic of Congo (XAF), Cote d’Ivoire (XOF), Equatorial Guinea, (XAF), Gabon (XAF), Guinea–Bissau (XOF), Mali (XOF), Niger (XOF), Senegal (XOF), and Togo (XOF).

Within the Franc zone are two sub-regions – CEMAC for Central African States and WAEMU for West African States. The two regions issue two distinct versions of the CFA franc: in West Africa, it is called the franc of the “Communauté Financière Africaine” and in Central Africa, the franc of the “Coopération Financière en Afrique Centrale.” Thus, the two currencies are distinguishable and are not freely exchangeable, and they may face different devaluation risk. In fact, the CFA franc zone also includes Comoros, with its own currency and central bank.

2. Non CFA franc Countries

Other countries in the continent use own individual currencies. These are, Algerian dinar, Angolan kwanza, Botswana pula, Cape Verde escudo, Congolese franc (DRC), Djibouti franc, Egyptian pound, Eritrean nakfa, Ethiopian birr, Gambian dalasi, Ghanaian cedi, Kenyan shillings, Lesotho loti, Liberian dollar, Libyan dinar, Malagasy ariary, Malawian kwacha, Mauritanian ouguiya, Moroccan dirham (also used by Western Sahara), Mozambique metical, Namibian dollar, Nigerian naira, Reunion euro, Rwandan franc, Sao Tome dobra, Seychelles rupee, Seirra Leone leone, Somali shillings, South African rand, Sudanese dinar, Swaziland lilangeni, Tanzanian shillings, Tunisian dinar, Ugandan shillings, Zambian kwacha and Zimbabwean dollar.

Amongst the non CFA franc countries are other sub-regional currencies. These are:

I. The Rand Monetary Area (Southern Africa)

This comprises of South Africa (rand), Swaziland (lilangeni), Lesotho (loti), and Namibia (dollar). Unlike the franc zone, only South Africa uses the Rand. The other member countries have individual nominal currencies.

Currently, Zimbabwe declared that it will be using the Rand and the US dollar, while the Zimbabwean dollar is under suspension.

II. The Shilling Zone (East Africa)

This zone comprises of Kenya, Uganda, Tanzania (these operated one currency board – the East African Currency Board till the 70s) and Somalia. It should be noted that though they use the same currency, the exchange rates are different.

The Central Bank of Western and Central African states is responsible for the CFA franc (XOF) and (XAF) while individual national banks are responsible for the currencies of other countries in the continent. The 53 African countries (as listed above) use about 39 different currencies. The multiplicity of currencies in the continent is one of the major bottlenecks for faster sub regional and continental economic integration.

Table 1: African Currencies

THE USD, EURO, AND GBP EXCHANGE RATES AGAINST AFRICAN CURRENCIES[4]

S/N	COUNTRY	CURRENCY	1 USD	1 EURO	1 GBP
1	Algeria	Dinar	72.74
2	Angola	New Kwanza	77.62
3	Benin	CFA Franc (XAF)	490.96	655.74906	731.88523
4	Botswana	Pula	7.15
5	Burkina-Faso	CFA Franc (XAF)	490.96	655.74906	731.88523
6	Burundi	Burundi Franc (BIF)	1,210.10	1652.70414	1844.59243
7	Cameroon	CFA Franc (XAF)	490.96	655.74906	731.88523
8	Cape Verde	CV Escudo	83.50
9	Central African Rep.	CFA Franc (XAF)	490.96	655.74906	731.88523
10	Chad	CFA Franc (XAF)	491.07	655.74906	731.88523
11	Comoros	Comoros Franc (KMF)	368.30	494.10742	551.47609
12	Congo (D.R)	CFA Franc (XAF)	780.00	655.74906	731.88523
13	Congo (Republic of)	CFA Franc (XAF)	491.07	655.74906	731.88523
14	Cote d’Ivoire	CFA Franc (XAF)	491.07	655.74906	731.88523
15	Djibouti	Djib Franc (DJF)	175.57	241.94226	270.03312
16	Egypt	Egyptian Pound (EGP)	5.63	7.63369	8.50351
17	Equatorial Guinea	CFA Franc (XAF)	491.07	655.74906	731.88523
18	Eritrea	Eritrean Nakfa	16.39
19	Ethiopia	Birr (ETB)	11.11	15.31392	17.09196
20	Gabon	CFA Franc (XAF)	490.98	655.74906	731.88523
21	Gambia	Dalasi	26.16
22	Ghana	Cedi (GHS)	14,416.69	1.98096	2.21096
	Ghana	New Cedi	1.44
23	Guinea	Guinea Franc	4,861.40
24	Guinea-Bissau	CFA Franc (XAF)	490.79	655.74906	731.88523
25	Kenya	Kenya Shilling (KES)	78.39	105.60650	117.86801
26	Lesotho	Loti (LSL)	8.28	11.53826	12.87792
27	Liberia	Liberian Dollar	65.51
28	Libya	Dinar	1.28
29	Madagascar	Ariary	2,105.26
30	Malawi	Kwacha (MWK)	143.00	194.30348	216.86322
31	Mali	CFA Franc (XAF)	490.85	655.74906	731.88523
32	Mauritania	Ouguiya	266.25
33	Mauritius	Rupee (MUR)	33.69	45.25342	50.50760
34	Morocco	Dirham (MAD)	8.35	11.20094	12.47723
35	Mozambique	Metical	27,618.21
	Mozambique	New Metical	27.61
36	Namibia	Namibia dollar	8.27
37	Niger	CFA Franc (XAF)	490.55	655.74906	731.88523
38	Nigeria	Naira	147.45
39	Rwanda	Rwanda Franc (RWF)	568.70	772.85216	862.58467
40	Sao Tome and Principe	Dobra	16,285.00
41	Senegal	CFA Franc (XAF)	490.45	655.74906	731.88523
42	Seychelles	Rupee	14.60
43	Sierra Leone	Leone	3,150.00
44	Somalia	Somali Shilling	1,405.00
45	South Africa	Rand (ZAR)	8.26	11.49780	12.80397
46	Sudan	Dinar, obsolete (SDD)	235.73	273.31978	305.05375
	Sudan	Pound	2.35	273.31978
47	Swaziland	Lilangeni (SZL)	8.26	11.53826	12.87792
48	Tanzania	Tanzanian Shilling (TZS)	1,326.00	1806.04782	2015.74019
49	Togo	CFA Franc (XAF)	490.69	655.74906	731.88523
50	Tunisia	Dinar (TND)	1.39	1.86286	2.07513
51	Uganda	New shilling (UGX)	2,209.00	3046.67319	3400.40917
52	Western Sahara	Moroccan Dirham (MAD)	8.32		12.47723
53	Zambia	Kwacha (ZMK)	5,365.00	6937.94975	7743.48494
54	Zimbabwe	New Zimbabwe Dollar (ZWD)	294.18	439.38758	490.40296

EXCHANGEABILITY OF AFRICAN CURRENCIES

African countries are in dire need of a medium of exchangeability of their currencies without going through the US dollar, the Euro or the GBP. These currencies (USD, Euro, GBP) could however, be used as a measure or store of value. This will facilitate trade between the various African countries. As a starting point, African countries should:

• Agree on a free flow of various currencies
• Agree on an African Bank of settlement, with primary function of settling the balances between the various currencies. This will make possible, the direct exchange of one African currency for another. E.g. the Nigerian naira with the Cameroonian franc.

Even from the outset, exchangeability could be agreed upon while we arrange our exchange rates through the US dollar or Euro. Exchangeability between African currencies can be arranged through a third/international currency (e.g. US dollar, Euro or GBP) or composite of a group of international currencies. In such an arrangement, one would not need an external currency to travel from their country to another African country.

Looking at the table above, the Algerian dinar would be exchanged for the Zambian kwacha as follows:

1 USD =72.74 dinar

1 USD = 5365 kwacha

1 dinar = 73.75 kwacha (5365/72.74)

Through this cross rate, it would be possible for anyone travelling from their country to know the exchange rate of other currencies in the region. A brief table will illustrate across Africa currency-exchange rates and one could prepare a matrix of the 39 currencies which could be available in all Central Banks.

	Algerian dinar	Nigerian naira	Libyan dinar	S.A rand	Botswana pula	Kenya shilling	Zambian kwacha
Algerian dinar	-	2.03	0.02	0.11	0.10	1.08	73.75
Nigerian naira	0.49	-	0.01	0.06	0.05	0.53	36.37
Libyan dollar	56.83	115.23	-	6.45	5.59	61.24	4,191.41
S.A rand	8.81	17.86	0.15	-	0.87	9.49	649.52
Botswana pula	10.17	20.63	0.18	1.16	-	10.96	750.35
Kenya shilling	0.93	1.88	0.02	0.11	0.09	-	68.44
Zambian kwacha	0.01	0.03	0.002	0.002	0.001	0.02	-

THE VOLATILITY (RISK) OF AFRICAN CURRENCIES[5]

Since the collapse of the Bretton Woods system, the IMF members have been free to choose any form of exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float freely, pegging it to another currency or a basket of currencies, adopting the currency of another country, participating in a currency bloc, or forming part of a monetary union. And since 1985 all attempts to move back to global peg based on gold were completely abandoned.

However, some governments may choose to have a “floating,” or “crawling” peg, whereby the government reassesses the value of the peg periodically and then changes the peg rate accordingly usually through devaluation. This method is often used in the transition from a peg to a floating regime. The peg has worked in creating global trade and monetary stability when all the major economies were a part of it while a floating regime, though not without its flaws, has proven to be a more efficient means of determining the long term value of a currency and creating equilibrium in the international market.

At present, most African countries follow floating or managed float exchange rate regimes. However, the ensuing exchange rate volatility (risk) in some African countries has seriously affected their economic performances. There are as many currencies in Africa as the number of countries. Except the Communauté Financière Africaine franc (XOF) or (XAF), or CFA franc, for short, there are limited currencies of regional significance in the continent. The multiplicity of currencies and limited monetary and economic integration puts the continent at a disadvantage especially during the time of global economic shocks such as the current global economic crisis.

The CFA franc zone exchange rates exhibited higher level of volatility in the continent compared to other currencies. Between November 2007 and December 2008, the value of CFA franc against the USA dollar fell from 453.40 to 521.80 per US dollar. That is the nominal CFA franc has depreciated by about 15 percent against the US dollar during the past year alone with a considerable volatility during the period. Currency depreciation is usually considered to be good for exports because it promotes the competitiveness of the domestic exporters by reducing the price of exported goods in terms of the local currency. However, since recently economists are concerned about the stability of the local currency instead of the absolute fall or rise in the values of a currency at a given point in time.

Outside of the CFA franc currency zone, Western and Southern African currencies exhibited higher level of volatility during the past year. For instance, the Ghanaian cedi fell from 9325.20 in November 2007 to 12, 231.71 per US dollar in December 2008.

The other volatile currency in the continent during the period under consideration was the Zambian kwacha which fell from 3707 to 4575 per US dollar.

Other currencies in the continent whose exchange rates depreciated and were volatile during the year include, Algerian dinar, Comoros franc, DRC franc, Botswana pula, Gambian dalasi, Guinea franc, Kenyan, Ugandan and Tanzanian shillings, Lesotho loti, South African rand, Namibian dollar, Madagascar ariary, Sao Tome dobra, Seychelles rupee, Ethiopian birr, Sudanese dinar, Swazi lilangeni and Somali shillings among others.

The only currency in the continent that showed a marginal appreciation in nominal values was the old and new Mozambique metical. The value of the latter per US dollar increased from 25.69 in November 2007 to 24. 53 in December 2008.

The most stable currencies during the period under review were Angolan new kwanza, Egyptian pound, Eritrean nakfa (which was fixed at 15 nakfa per US dollar), Libyan dinar, Nigerian naira, Tunisian dinar and Rwandan franc.

The most volatile currency in the continent is the new Zimbabwean dollar which was highly volatile during the year and depreciated by about 176 percent between November 2007 and December 2008 reflecting the serious economic problems in the country. The Zimbabwean dollar continued weakening till it was suspended in March 2009 and the country opted to use the US dollar or the South African rand.

Over the last few years, the exchange rates have been weakening. The figures below give an illustrative picture of the volatility of African currencies (against the US dollar) between November 2007 and April 2009.

	November 2007	April 2009	Change	% change
CFA zone	453.40	520.80	67.4	14.9
Ghanian cedi	9325.20	12,231.71	2,906.5	31.2
Zambian kwacha	3707	4,575	868	23.4
South African rand	6.69	9.15	2.46	36.8
Kenyan shilling	66.3	79.72	10	20.2

MOVING TOWARDS A MONETARY UNION (1) - Opportunities and Weaknesses

• The strategy for forming an African currency relies on first creating currency unions in Africa’s regions, then merging them into a single currency area[6]. Africa already has three common currency areas, the two regions in the CFA franc zone and the Common Monetary Area in Southern Africa. In West Africa, ECOWAS would merge the West African CFA zone (WAEMU) with a projected second monetary zone. Doing so would most likely mean the end of the CFA zone. Similarly, SADC and COMESA’s embryonic projects for monetary union envisage the creation of new central banks and asymmetric monetary union.

If South Africa and the smaller CMA countries were to be a part, the rand area with its considerable track record and credibility would likely disappear. In Southern Africa, countries that comprise the Southern African Development Community (SADC) intend to form a monetary union, though this is a much vaguer and more distant project. The southernmost countries, South Africa and the smaller members of the Southern Africa Customs Union, are reasonably advanced and stable. However, their neighbours to the north include countries with recent or continuing problems of civil unrest (Angola, Democratic Republic of the Congo, and Zimbabwe) as well as some facing poverty (Malawi and Zambia, for instance). Their financial systems are generally much less developed than those of the southernmost countries and the shares of manufactures in production and exports are low.

The Common Market for Eastern and Southern Africa (COMESA), a group of countries that cuts across two geographical regions, is also developing a monetary union project. Disparities among COMESA countries are about as important as those affecting SADC (and there is considerable overlap in membership of the two organizations); but COMESA’s drawback is that South Africa—the greatest pole of monetary stability in the region—is not one of its members. Three countries—Kenya, Tanzania, and Uganda (only two of which are in COMESA)—also plan to revive the East African Community and the common currency that were dissolved in the decade following independence. These different projects illustrate a pervasive problem in Africa—overlapping commitments that are not necessarily consistent. Attempts to advance on too many fronts often result in inaction. Within the five main RECs associated with the AU (the three mentioned above along with the Arab Maghreb Union and the Economic Community of Central African States), ten countries belong to more than one regional grouping, with the Democratic Republic of the Congo holding three memberships.

A smaller COMESA (when it was Preferential Trade Area – PTA) had experimented with one currency known as UAPTA (Unit of Account for PTA), which worked well during its period of existence. Had this continued through to the time of COMESA, the currency would have taken root now.

• A second, and potentially more promising strategy, and an alternative to creating new, ambitious monetary unions based on the RECs would be to build on the credibility of existing monetary unions (the CFA franc zone and the CMA) by adding to them countries that have demonstrated their commitment and ability to deliver sound economic policies by satisfying convergence criteria for a significant length of time. Unfortunately, the western African CFA franc zone has been hurt by unrest in Côte d’Ivoire and its central African counterpart is composed mainly of oil-producing countries with pronounced terms of trade swings. Extending the CMA, where South Africa is a fairly stable, developed pole, may be a more attractive possibility in the short run. However, its SADC neighbours are, with a few exceptions, too far from the macroeconomic stability necessary to converge with South Africa and share the same currency, so many will not be candidates to join for decades. Thus this strategy, which is more likely to succeed and produce gains for the countries concerned, would however not lead to a continent-wide currency. It would produce some modest gains in the use of the CFA franc and the rand, but not prepare the ground for the adoption of a common currency in all regions.

Another disadvantage to hinging the goal of a single African currency on first creating new monetary unions spanning pre-defined regions is that the countries in each region may have little incentive to adapt their policies to some standard of “best practice,” since it is taken for granted that all countries will join. It will be very difficult for countries that have achieved a modicum of fiscal discipline to deny membership to those that have not. Thus, there is a strong likelihood that an unstable and unattractive monetary union would be created. In contrast, adding countries to the existing monetary unions would give strong incentives for existing members to scrutinize potential members.

Given the widespread problems of lack of fiscal discipline and stable macroeconomic policies, it is important to use the objective of monetary union to bring to bear pressures for greater discipline and better governance.

Moreover, success breeds success; as the monetary union grows through adding countries with stable macroeconomic policies, it becomes more attractive for others to join.

Thus, the path chosen for creating monetary unions matters. It may be impossible to get all countries to agree to form a currency union that spans the continent, but a partial monetary union could be feasible. If combined with stringent entrance criteria, it could provide a potent incentive for improved policies.

• A third strategy for furthering monetary cooperation would be for African countries to have a common peg to an international currency, and perhaps also a common regional currency board based on it5. Such a strategy would have the advantage of providing an external anchor for monetary policy, and a peg to the euro would produce exchange rate stability vis-à-vis Africa’s main trading partner. However, this already exists in that all African currencies are pegged against the US dollar.

It would further clearly place the onus on each country to follow appropriate policies to maintain the peg; it would be clear where responsibility lies for doing so. However, the big drawback of such a proposal would be political: unilateral pegs, though they would produce stability between pairs of African currencies as a by-product, would not involve the African institution-building and the creation of a new currency that could serve as symbols of African solidarity. One suspects that they would not be durable either, since no external “agency of restraint” would have been created to modify existing unsustainable fiscal policies.

But instead of pegging against one international currency, it might be important to deal with a peg in a basket of currencies, given that the African countries have trade bias with mainly their former colonial masters.

BENEFITS OF A MONETARY UNION

A monetary union allows member countries, though different, to use one currency. Masson and Pattillo (3) developed a model for monetary union based on data for 1995-2000 on 32 African countries’ government revenue, spending and inflation to fit the model and estimate the parameter values. The comparison of outcomes for these variables across countries with independent currencies and those in monetary unions helps pin down the disciplining effect of a common currency.

The results of the exercise shed some light on the economic advantages of monetary union projects, as follows.

First, if all countries in the region are identical and subject to the same shocks, then a currency union including all countries would be desirable for all. The loss of monetary autonomy would not entail any cost, while all countries would benefit from lower inflation because the common central bank would not try to stimulate output in any one country through monetary expansion at the expense of others.

Second, if there are differences in governments’ financing needs, the incentives to participate in a monetary union will differ across countries. Big spenders will benefit from the extra discipline afforded by the regional central bank, which partly offsets the inflation bias of their national central bank, while small spenders will incur additional losses stemming from the excessive demands of the big spenders for monetary financing.

Third, the union-wide inflation target of the common central bank will accommodate only the common component of supply disturbances (identified with terms of trade disturbances), and this makes abandoning an independent monetary policy in the face of very different country-specific shocks costly. It was found that African countries with their own monetary policies tend to suffer from higher inflation the lower they score on measures that proxy for diversion of spending and taxes to purposes that do not reflect social needs. Instead, these diverted funds may just serve the private objectives of the government in power, which may tolerate corruption as a way of rewarding its supporters, for instance.

PROBLEMS AND CHALLENGES OF A MONETARY UNION (3)

There are two principal reasons for the enthusiasm for African monetary union—both of which transcend the conventional economic aims of higher growth and lower inflation. First, it is clear that the euro’s successful launch has stimulated interest in monetary unions in other regions. But it is sometimes forgotten just how long the road actually was for Europe.

In Africa, fiscal problems are much more severe and the credibility of monetary institutions is more fragile. If the process of creating appropriate institutions was so difficult for a set of rich countries with highly competent bureaucracies that have cooperated closely for more than 50 years, then, realistically, the challenge for African countries must be considered enormous.

It should be borne in mind that at independence and immediately thereafter, East African countries (Kenya, Uganda and Tanzania) operated a single currency and one currency board – the East African Currency Board (shilling).

Second, African monetary union has been motivated by the desire to counteract perceived economic and political weakness. For example, regional groupings could help Africa in negotiating favourable trading arrangements, either globally (in the World Trade Organization context) or bilaterally (with the European Union and the United States).While the objective of regional integration seems well founded, it is unclear whether forming a monetary union would contribute greatly to it. A currency that is ill managed and subject to continual depreciation is not likely to stimulate pride in the region or give the member countries any clout on the world stage.

In a nutshell, a common currency can save on various types of transaction costs, but a country abandoning its own currency gives up the ability to use national monetary policy to respond to asymmetric shocks. These costs, in turn, can be minimized by greater flexibility of the economy. That is, a country relinquishing its national monetary sovereignty may nevertheless be able to adapt to these shocks, mainly through labour mobility, wage and price flexibility, and fiscal transfers. The likelihood of a country experiencing asymmetric shocks depends on how similar its production and export structures are relative to its partners in the monetary union.

Euro-area countries have much better communication and transportation links than African countries, so Africa may not expect the same gains from economies of scale and reduction of transaction costs, even in proportion to its economic size, that are expected to result from Europe’s monetary union. Because they are highly specialized, African countries suffer large terms of trade shocks, which often do not involve the same commodities and hence do not move together.

The analysis, when applied to Europe, usually has assumed that institutional design issues have largely been resolved. In Africa, however, the institutional challenges are much greater. Existing national central banks generally are not independent and countries with their own currencies have often suffered periods of high inflation because the central banks were forced to finance public deficits or other quasi-fiscal activities.

A critical question for Africa is whether the creation of a regional central bank can be a vehicle for solving credibility problems that bedevil existing central banks. If so, establishing a central bank that is more independent and exerts greater discipline over fiscal policies than national central banks do, may enable it to become an “agency of restraint” (in the words of Paul Collier, a prominent economist who has worked on a wide range of economic topics concerned with African development).

However, history tells us that such an agency of restraint requires other institutional buttresses and does not emerge directly from monetary union alone. In fact, the experiences of Africa’s two long-standing monetary or formal exchange rate unions—the CFA franc zone (comprising two regions, the West African Economic and Monetary Union – WAEMU[7] and the Central African Economic and Monetary Community - CEMAC) and the Common Monetary Area (CMA) based in South Africa’s rand – do not suggest that the existence of a monetary union per se is associated with a dramatic increase in regional trade and policy co-ordination.

Selective expansion of existing regional monetary unions—CMA, CEMAC, and WAEMU—could be feasible.

Overlapping memberships in the different regional groupings—and hence overlapping commitments—have resulted in duplication of effort and occasionally inconsistent aims in African regional integration initiatives.

IS A SINGLE CURRENCY GOOD FOR AFRICA?

We have considered above the factors that influence the benefits and costs from monetary union, highlighting the importance of trade linkages in creating benefits, and of asymmetries in terms of trade shocks and in fiscal discipline in generating costs. The same factors apply at the Africa-wide level; but both benefits and costs are amplified as the potential size of a monetary union is increased. In particular, a monetary union that includes more countries is likely to internalize more trade (and in the limit of a single world currency, all trade becomes domestic trade)

An important motivation for monetary union in Europe was to reduce the costs of changing money associated with trade and tourism. We have shown that trade within African regions tends to be a small proportion of total trade (an exception being the CMA), and the same is true even at the continent-wide level. Intra-African trade is modest, so gains for a monetary union deriving from lower transactions costs would necessarily be much smaller than in Europe

A second important reason to create a monetary union may be to improve on the monetary policies provided by national central banks, which have typically fallen prey to pressures to finance government deficits and hence have produced high inflation and depreciating currencies.

Monetary union can in fact address very few of Africa’s fundamental ills. At best, it can produce low inflation, but it cannot guarantee growth, and at worst, it can distract attention from essential issues. A more promising initiative is the New Partnership for African Development, through which African countries hope to exert peer pressure to correct governance failures and thus make progress in correcting Africa’s problems. It is too early to see how effective that process will be, but if it succeeds, then Africa can benefit from enhanced international trade and foreign direct investment. Moreover, regional economic integration, including monetary union, could build on that achievement.

THE AFRICAN OPTION ON THE CURRENCY

As has been discussed earlier, the continent should adopt a protocol to deal with the currency issue. Again, as earlier mentioned, the currency issue can well be discussed alongside the issue of visas.

As the relaxation of visas will allow easy travel, people will need to have available currency to facilitate travel.

Easy travel will in turn facilitate regional trade. As the African countries agree to trade more with each other than the Northern hemisphere, there will be more integration, which in turn will strengthen the sub-regional currencies or the one currency agreed upon.

THE WAY FORWARD

A major drawback to hinging the goal of a single African currency on first creating new monetary unions spanning predefined regions is that either not all countries will be willing to join, or the countries in each region may have little incentive to adapt their policies to some standard of best practice because it is taken for granted that no country will be denied entry.

First, limited expansion of existing monetary unions could be feasible; such expansion would give strong incentives for existing members to scrutinize the policies of potential members. Given the widespread lack of both fiscal discipline and stable macroeconomic policies, it is vital to use the goal of monetary union to encourage greater discipline and better governance. Moreover, success breeds success. As the monetary union grows by adding countries with stable macroeconomic policies, it becomes more attractive for others to join.

Africa’s two existing monetary unions—the CFA franc zone and the CMA in Southern Africa—could be selectively expanded, as neighbouring countries achieve greater convergence with the countries that already share a common monetary policy and currency. This would build on the credibility of these existing monetary unions by adding countries that have demonstrated their commitment and ability to deliver sound economic policies by satisfying convergence criteria—particularly on fiscal policies—for a significant time.

Second, the AU’s NEPAD initiative—a parallel initiative to the monetary union project—recognizes that peer pressure within Africa can help in meeting NEPAD’s aims of improved economic growth, governance, and policies.

Better governance and domestic policies would in turn facilitate regional economic integration, including monetary union. The absence of progress on these issues would almost certainly doom an African monetary union to failure (1).

The options available are either to go through individual currency exchangeability or go direct to single currency instead of going through a monetary union system. What is more imperative is the political will to declare that countries are ‘ready to go’. Europe has done it even without the British pound.

CONCLUSIONS AND RECOMMENDATIONS

• African Union should go ahead and establish an African Currency (‘Africana’) with exchange rate set against all national currencies.
• The countries which adopt the currency will immediately abandon their currency and use ‘Africana’.
• Those countries which do not sign up to the use will sign up to the exchangeability fo their own currency to the ‘Africana’.
• This will be the gradualist approach to the currency debate, but without the undecided countries holding others back.
• Visas should be abolished among African citizens as an immediate measure to form the United States of Africa.
• Should the visa approach be gradualist, the countries which believe in continental unity could abolish theirs unilaterally.
• Then, the others should accept at the minimum that every African citizen should get an automatic 90 day visa at the point of entry to another African country.

The two pre-conditions for the formation of the United States of Africa will go a long way to addressing the current debate.

REFERENCES

(1) Masson, P., Pattillo, C., The Monetary Geography of Africa. Available on http://www.brookings.edu/views/papers/Masson/20031017.pdf

(2) Kumo, W. L., The African Currencies and their Exchange Rate Volatility. Available on http://www.americanchronicle.com/articles/view/85614

(3) Masson, P., Pattillo, C., A single Currency for Africa?. Also available on http://www.imf.org/external/pubs/ft/fandd/2004/12/pdf/masson.pdf

(4) http://www.mbendi.com/cyexch.htm

(5) http://en.wikipedia.org/wiki/Central_banks_and_currencies_of_Africa

(6) http://www.exchange-rates.org/currentRates/F/GBP

(7) http://209.85.129.132/search?q=cache:ZF1QUVhKBYQJ:www.exchange-rates.org/currentRates/F/EUR+EURO+exchange+rates+against+currencies+in+Africa&cd=1&hl=en&ct=clnk

(9) http://www.xe.com/ucc/

HIV/AIDS: A Setback on Small Micro Enterprises

PART 1

A lot has been written about the economic impact of HIV/AIDS on businesses and households. Yet we have not clearly looked at the actual financial cost being borne by the society. From one point of view we have seen literature on the cost of drugs and the cost of looking after the aids orphans. To date very little is done on the total impact, which should look at the various types of cost stemming from medical, burial, care for the orphans, discounted loss of revenue from the earnings of those who are affected and finally die.

There are costs of infection and the costs incurred by relatives who get sick. The loss of earnings due to absenteeism by workers as they get treated or look after the sick ones. The employed workers will have an effect on the firm’s productivity, but the self-employed in Small Micro Enterprises will have their families affected by loss of revenue generating activity at the business. Understanding what AIDS costs the society will be useful to the planners and budget administrators in assessing the most effective intervention point.

HIV and AIDS pandemic is alarming in terms of its devastating effect in Africa. In a recent study by the Medical Research Council in South Africa entitled Estimates of Provincial Mortality (2005), it was reported that HIV and AIDS causes on average 30% of all the deaths in the country. Also emphasized by the report on Aids Epidemic Update 2005 is the speed at which the disease is spreading and the deaths it is causing: “Sub-Saharan Africa has just over 10% of the world’s population, but it is home to more than 60% of all people living with HIV-25.8 million…In 2005 an estimated 3.2 million in the region became newly infected, while 2.4 million adults and children died of AIDS. Among the young people aged 15-24 years an estimated 4.6% of women and 1.7% of men were living with HIV in 2005’’ (UNAIDS/WHO: 2005, 17).

This picture calls for urgent attention as the young people are the ones with longer life expectancy and potential to foster entrepreneurship for economic development. If the continent loses the youth at this rate it is just a matter of time before the whole population is extinct.

Financial costs of HIV and AIDS are much higher than what is currently estimated and unless the actual costs are known, the Government budgeting for the disease and the private sector investment on prevention will always be under-funded. Whenever financial costs of HIV and AIDS are spoken of, people only look at the costs, which are obvious. Such costs are well documented, as governments know how much they put for medical care, condoms, ARVs, costs of hospital, funerals and looking after orphans.

There are hidden financial costs, which are not generally addressed in the literature, and therefore a gap exists in cost analysis. The gap exists in determining the potential loss of earnings of those who are affected while young, at the height of their productive capacity. A person of 25-30 years has an active working life of other 30 or so years. The loss of these thirty-plus years is an actual cost and this is what is hidden and has not been addressed adequately. Very little of this has been done. Another gap exists in that businesses and other employers lose a lot of revenue through the absenteeism of the sick employees, through the disruption of work due to hospitalization and deaths.

SMEs are a major employer of Labor. In South Africa the labor force is shared as follows: Informal and micro (39%), Small and medium (27%) and Large (34%). Their share of the GDP in 2000 was 24%, 32% and 44% respectively. In total they share 56% of GDP and they employ 66% of the labor force. The point cannot be gainsaid that the SMEs are an important vehicle for economic development and should therefore be given the attention they deserve. It can be observed from the above statistics that the SMEs are labor-intensive. As such the impact of the pandemic should be heavily felt by these enterprises.

Psychological Impact

The psychological effect the disease has is large though by large immeasurable. The people affected by the one infected person are many. The children caring for a sick parent or the parent caring for a sick child all live through anxiety waiting for the inevitable death. This creates depression, and a sense of hopelessness. This is even more so if the family does not have the resource to meet the needs of the family and the sick. In some communities people affected by a HIV and AIDS death do not know how to relate with the others. The children left behind are unable to continue the SMEs run by their parents. Girl mothers are not well equipped to take over the roles. To combine the role of mourning the parent and reviving their business is not easy.

Social Impact

In a number of countries in Africa the disease carries with it stigma. Because of traditional values people refuse to acknowledge the disease. The family members of the sick person may face discrimination from their neighbors. The disease also carries with it a perception of low morality and wrong sexual behaviour. Most communities have failed to accept it as a pandemic that must be confronted openly without stigmatizing those infected. This attitude makes the families affected create negative defense mechanisms.

Impact on Education Sector

Orphans may have to leave school when the parents die and start working young. School fees may no longer be affordable once the income earner is ill disposed. This affects the future capacity of these children to sustain themselves. With little if any education, they will be negatively affected in becoming entrepreneurs of the future. Lack of education hampers development of SMEs as there is lack of basic skills such as arithmetic or numeracy critical to any business venture. HIV and AIDS amongst teachers leads to absenteeism and replacement costs. There is overloading the teachers who are not sick impacting on the quality of education.

Life Expectancy Impact

HIV and AIDS has had an impact on the life expectancy for many countries in Africa. Young people are the major casualties of this pandemic. Life expectancies declined in a number of countries between 1999 and 2002. A sample of countries quoted were: Lesotho from 48 to 39 years; Swaziland: from 47 to 39 years; South Africa: from 54 to 51 years; Kenya from 51 to 46 years; and Tanzania from 51 to 44 years. In the same period the average life expectancy in Sub-Saharan Africa dropped from 49 to 47. Life expectancy rose in Uganda from 43 to 45, showing that when correct measures are taken, the trend can be reversed.

It is reported by the Department of Health South Africa that 29.5% of women attending antenatal clinics were HIV-positive in 2004. It was also reported that prevalence was highest among women aged 25-34 years one- third of whom were living with HIV and that more than one–third of women aged 20-24 were infected. In the worst affected province of KwaZulu - Natal prevalence has reached 40%. National adult HIV prevalence has risen from less than 1% in 1990 to 25% within 10 years.

In a recent study of death registration based on about 2.9 million death notification certificates, it was reported that deaths of people above 15 years had risen by 62% in five years. Deaths of people in the ages of 25-44 years more than doubled and that about one-third of the deaths were among that age group (approximately 1 million). AIDS is suspected to be the major contributor to the deaths. The same pattern was observed where the prevalence among pregnant women was about 30% in Lesotho, Namibia, and Botswana. In Swaziland the figure rose to 43% in 2004 from 34% in 2000. HIV and AIDS thus has an impact in reducing life expectancy.

It is from the same group affected by HIV and AIDS that the potential entrepreneurs and participants in SMEs are expected to come from. When the devastating effects of the pandemic are considered it is clear that unless something is done urgently the African continent will soon be faced with crisis of manpower.

Impact on Health Sector

As the HIV and AIDS pandemic spreads there is pressure in the health sector in terms of medicine, staff and pressure on hospitals due to increased hospitalizations, in some countries counting for more than 50% of all hospital beds. It also has negative impact on the overall quality of care due to shortage of beds, staff and overworking of current staff. The hospital workers are also becoming victims of the same pandemic making the cost of training others even higher. Community/Home –based care is another increase on the cost of communities as they care for those who cannot afford hospitals. The costing of the health sector needs is necessary for the national budget as this is the sector required to deal with the cases of the disease.

The Impact on Households

The   impact of HIV and AIDS on households is of importance to the study of SMEs as most of these businesses are run at the family level. The poorest households seem to be hit most by the disease because of their meager resources. In a study on a number of countries in Africa, it has been observed that in some cases some households dissolve after the death of the parents (in Zambia 65% of families). HIV and AIDS strips the family of income earners and assets hence impoverishing them. Incomes in the affected families decline to almost half of those unaffected. Besides the loss of the income earner other family members spend more time looking after the sick instead of generating more income. The disease is also pushing poor families to extreme poverty because of the increase of dependants and reduction of earners.

Poor families reduce their expenditure on basic necessities in order to fund the care of the sick. In a South African study it was found out that the poor families were reducing their expenditures on clothing by 21%, electricity (16%), other services (9%) and food (6%) making about half of the households complain that they were not having enough food. In the rural areas food production is reduced creating more hunger. Home-based care is also another cost incurred, plus costs of funerals. In South Africa, the reported costs of funerals were estimated at between Rand 4000-R 5000 per death. If one takes the average of R4500 (approximately USD 750) this is very high for poor families, given that there may be more than one death in a family in a year and that the income–earner has died. Most families coped through heavy borrowing increasing their burden

Impact at National Level

At the national level the impacts on the economy have been identified as the additional costs in Public sector especially in heath and education. These costs affect the national budget and deflect resources from development activities therefore affecting economic growth. By reducing economic growth, there are fewer resources for addressing the pandemic and hence a vicious circle is created. The government loses revenues through loss of income taxes, while the demand on the budget increases.

It has been estimated that the rate of economic growth in Sub-Saharan Africa has declined by 2-4%. Forecasts by some studies indicate that Botswana and Swaziland will be growing at 2.5% and 1.1% points less respectively by 2015 and South Africa may face a GDP 17% lower than would have been the case without AIDS. Because of the effect on the population, many countries will be unable to attract industries which depend on low-cost labor. In attempting to measure the actual impact of HIV and AIDS to the economy, one would have to isolate the other factors which are affecting the economic growth. This becomes difficult as they are all tied up together.

By Prof Ngotho wa Kariuki
Faculty of Management
University of Venda, South Africa