“Russia and China: Partners in Dedollarisation.” “Will India Support China and Russia’s Dedollarisation?” “Russia’s Dedollarisation Delusion.” These are some of the news headlines that jump off the page when you google the term “dedollarisation.” If you read long and hard enough on the subject, you might get a brief mention of Africa now and then, but only as the ‘S’ in ‘BRICS’, because frankly, apart from China, Russia and perhaps India who all seemingly have their own plans for world domination, who else is actively seeking an exit from the dollar-dominated current state of the global financial system? Who else is even worth mentioning in that context?
Africa is almost entirely ignored as an active participant in these conversations. The general assumption is that with just a little over 3 percent of global trade under its control – by far the lowest continental share – global trade and geopolitical dynamics are just not Africa’s primary concern. Only after solving some of its most basic problems like the aforementioned have done can Africa worry about little things like economic sovereignty and monetary independence. Is this true?
Africa’s economy and the dollar dependency handbrake
A trap that many analysts fall into when examining Africa’s economic outlook is to describe it in terms of what it could be, rather than what it already is. It is all too easy to forget that for all the bad economic indicators – widespread poverty, stubbornly low per capita GDP figures, and anaemic economic growth relative to population – Africa by and large is actually not physically imploding and collapsing in on itself. Save for a handful of perennial basket cases, the vast majority of the AU’s 55 member states are in fact, relatively stable – not fantastic by any means, but stable.
This means that despite poverty levels and slow growth, most of Africa’s 1.2 billion people are engaged in some form of economic activity. There is trade, manufacturing and service provision taking place, albeit not at the level and velocity required to escape from poverty. The skilled manpower to achieve industrialisation and economic sophistication also exist at some level and in some form. The tools and machinery to aid industrialisation are also present in some numbers. The land, resource endowment, ideas and entrepreneurial skill are definitely there in bucketloads. What is missing is the money to deploy all of these things adequately and put them to work.
To be more specific, a particular type of money that is needed to get things moving across borders in Africa – US dollars. Of the 4 factors of production – land, labour, capital and entrepreneurship – capital is the most abstract, and nowhere is this more cartoonishly evident than in Africa. In East Africa, it is more economically beneficial for Kenya to set aside vast amounts of its land and water to grow flowers for the fickle European export market, than it is to trade with Uganda next door. In fact, to be able to trade with Uganda, Kenya needs to use the dollars from those flower exports.
However, since Kenya can earn only so many dollars – because the things that can be sold for dollars are cheap, few and far-between – the amount of trade it can conduct with Uganda is limited. Instead of working as a formidable economic union of over 98 million people, both countries remain virtually siloed off from each other, with their non-mutually-convertible currencies, both ironically called the ‘shilling.’ Duplicate this absurd situation into 55 places and you get modern Africa – a continent populated not by lazy sea turtles or sleepy acacia trees, but 1.2 billion economically active and hardworking people whose hard work just so happens not to benefit them in any collective long-term way.
Egypt has one of the world’s most technically advanced construction industries, as does South Africa. Nigeria has an oil servicing industry that is unrivalled on the continent for its local fabrication and production capability. Kenya has a genuinely deep pool of world class software developers and IT talent. There are tradesmen in Cotonou who could execute engagements in Kinshasa flawlessly if they had the access. There are craftsmen and artists in Libreville who could build a market for their work in Nairobi if they had access. There are small business owners in Gaborone who would love to spend a reasonably-priced weekend jet-skiing in Sao Tome. There are millions of micro-opportunities and people ready to fill them all over the continent – but nothing happens without dollars. Ergo, export more flowers even though this doesn’t really help anyone in the long run.
Realistic routes to African dedollarisation
Dedollarisation may be invoked as a diplomatic hot button issue where China, Russia and India are concerned, but for Africa it is very much an existential one. US dollar dependency quite literally creates and sustains the poverty that we are familiar with. Poverty due to a simple lack of economic activity on a continent of 1.2 billion entrepreneurial people with a decent natural resource base is in fact, a completely contrived, artificial and unnatural phenomenon. If there is sufficient land, labour and entrepreneurship already, why must the capital that puts these things to work and creates jobs for Africans be this perennially scarce thing called the US dollar?
This is in fact, a situation that the AU specifically earmarked for resolution under its Agenda 2063. The Pan African Payment Payment and Settlement System (PAPSS) is supposed to be the long-term solution to the problem of artificial economic siloing. The idea behind PAPSS is to make Africa’s 42 currency zones interoperable, thus in theory giving Africa’s 1.2 billion residents free economic access to each other in a manner not dissimilar to the EU, NAFTA and Mercosur.
Implementation, as always, has turned out to be a different kettle of fish to policy formulation and announcements. Nevertheless, even without a full fledged PAPSS framework coming into action, there are a number of short term fixes that have been mooted to expedite Africa’s dedollarisation and accelerate the continental economy. Recognising that creating the world’s largest single currency bloc per Agenda 2063 may be a stretch to execute at once, the idea of creating 5 intermediate monetary zones to correspond with the 5 geographical zones of continental Africa has been mooted.
This is an intriguing solution, given that 14 AU member states across West and Central Africa are already part of 2 long-standing French-backed monetary unions. If these unions can be freshly iterated – sans French involvement – it would be interesting to observe the effect on cross-border trade volumes and transaction velocity among these 14 countries prior to the eventual continental merger. Another solution that has been mooted is for AU member states to fully legalise and adopt Bitcoin like El Salvador has done. The idea here is that since Bitcoin is the world’s first truly borderless modern medium of exchange and it can already do what PAPSS is hoping to do someday, it is thus the perfect vehicle for dedollarisation and we do not need to reinvent the wheel.
Ultimately, however, whether the solution to Africa’s poverty-inducing dollar dependency lies in PAPSS, 5 monetary zones across the AU, or even in adopting Bitcoin is beside the point. As Chinese Premier Deng Xiaoping once famously said during China’s era of opening up, “It doesn’t matter if a cat is black or white so long as it catches mice.” Africans living in Africa already have the land, labour and entrepreneurial ability to drive a globally competitive 21st century economy. The only ingredient missing is the economic freedom to deploy their factors of production rationally across the continent, driven only by the forces of demand and supply.
Getting rid of that handbrake is what dedollarisation means to Africa.