Read this story in The Economist today discussing the problems faced by an industrializing Africa. I think the story has a few problems in its analysis. The problem that Africa is facing is one of skipping the industrial phase of development and moving to the services phase seen in developed economies with out moving enough people from rural to the urban centers.
The story suggests the exchange rate fluctuations are not helping boost exports to support the industrialization of Africa. On the one hand, Africa is a commodities exporter and the commodity exports drive up the exchange rates. The story suggests such high exchange rates don't support manufacturing exports.
I think there is a problem here. Strong currencies make input costs lower and all major industrialized economies in the world today, be it Germany, China or USA, are following a strong currency policy. No doubt, they are commodity importers net-net. Even for Africa, if they are exporting some commodities, they will be importing others they don't have, such as maybe oil or copper.
A strong currency would thus make African economies much more competitive. Not only would that reduce the input costs, but also increase the domestic buying power and improve the quality of life. A stable currency such as a pegged currency would attract a lot of capital investments from manufacturing companies who benefit from the stable macroeconomics and low un-certainities.
All in all, Africa could try a managed currency regime like China did over last 20 years with free investment environment, to attract large capital investments to benefit from the local abundance of commodities.
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