A simple case study to de-link from the Rand

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Recent economic and political events in South Africa coupled with changing geopolitical dynamics in regard to especially Brexit and a new US president refers. Within that context, South Africa is without a doubt an economic power house on the African continent, but its medium- to long-term economic and political stability outlook vis-a-vis its relative potential negative impact on our domestic economy needs an important discussion and assessment.

A national currency is a reflection of the strength of the cost of domestically produced goods and services of nations vis-a-vis its ability and stability towards its citizens and to the rest of the world. As things currently stand, our currency is a direct reflection of the cost of goods and services that are significantly imported from South Africa and the rest of the world for domestic consumption, a situation that is neither sustainable nor healthy for a nation that wants to be on par with the industrialised nations of the world by the year 2030.

Before I proceed, I would like to highlight for the record that Namibia gained its independence in 1990, but after 27 years the nation still has its currency linked to the South African Rand and to its economy. And despite it being politically sovereign, the Namibian nation, without any currency exit strategy from the Rand, further puts itself in a situation that unfortunately challenges its long-term economic independence status as a nation that will always be – in terms of the foreign exchange rate and the importation of goods and services – at the mercy of its neighbour down south in relation to the rest of the world.

Botswana gained its national independence from Britain in 1966 with the stated political and economic commitment that it should within a period of 10 years have its own independent sovereign currency totally free from the South African Rand. During this economic transition period, Botswana remained a member of the Rand Monetary Area (RMA), using during that time the South African Rand as its official currency.

The country, however, as per its currency delinking master plan decided to completely withdraw from the RMA on the 6th of September 1974 and to forge ahead with its commitment to introduce a new local currency totally free from the Rand. This process commenced with a lot of preparatory work that involved the public in, among others, the choosing of a name for the new currency and deciding how much and in what denominations it should be produced.

This process thereafter culminated in the design and introduction of the “Pula” or the “Botswana Pula”, as the official name of the new currency to be ushered into the main economic stream of the country at that time. The name Pula – by the way – means “rain”, or “blessing” and resonates with the arid nature of the country’s climate and environment.

The Pula as a currency was, however, only officially introduced and circulated into the Botswana economic environment on the 23rd of August 1976, a day which is officially known as the “Pula Day”.

At that time, an initial 100 days were set aside for the exchange rate between the Pula and the South African Rand to be guaranteed with other standby arrangements, which were strategically set up to adequately ensure that there was enough supply of foreign exchange in place to safeguard the strength of the new currency. This arrangement was, however, cancelled in no time due to the tremendous reception and acceptance of the new currency by the public, to such an extent that the South African Rand was significantly exchanged out of the economy in large amounts for the Pula.
And as they say, the rest is history.

With that brief brave background, I note that the economy of Botswana is relatively and comparatively similar to that of Namibia in key significant areas, such as financial services, banking and insurance, diamond (and uranium) mining and tourism, but Namibia has among others much wider natural resource endowments, such as a large variety fish species, fauna and flora etc.

With the above simple illustration and comparative advantage towards Namibia, the country has without a doubt a much better economic base and case to also delink its currency from the South African Rand, with the only major differences being a culture of fear of the unknown, coupled with a total lack of confidence in the ability of the Namibian people and in their natural resource endowments to sustain the nation’s economic status relative to its population.

With that said, Namibia at 27 years old is no longer a child and should by now know its inherent economic strengths and weaknesses to be able to stand on its own currency going forward. Learning and being assisted by Botswana in this regard could be the right decision to economically free ourselves from dependency and to be our own true master in a fast-changing world.

* Pendapala Hangala is a socio-economist.

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