PUBLISHED ON July 25th, 2014


The East African Community has been advised to go slow on its pursuit of a monetary union and instead implement the Common Market Protocol.

Dr Horst Kohler, a former International Monetary Fund head who was also president of Germany, argued that the EAC is moving too fast towards a monetary union without fully functioning structures. He said it will be difficult for the bloc to have a monetary union without sound fiscal and economic policies.

“Instead of being preoccupied with the monetary union, the EAC should be focusing on the implementation of various aspects of the Customs Union to allow free flow of goods, labour and ideas,” said Dr Kohler at the first East African-German Business Colloquium in Nairobi on Wednesday. “These are the practical ways of integration and not the monetary union.”

Face same problems as EU

Dr Kohler, who was the patron of the colloquium, warned that if the EAC partner states do not conform to the rules of the Common Market and the Customs Union, the region is likely to face the same problems as the European Union (EU), which he said is in the process of healing “but it does not mean that EAC should take the same path.

“You have to ask what a monetary union means to member states. It means member states have to give up some measure of fiscal sovereignty. While leaders and policy makers can say they are ready to move on, do the people understand what giving up sovereignty means? It must involve the people at every step, where they are sensitised on the benefits and risks.”

He, however, conceded that it is difficult to advise Africa from the European perspective because the continent is different and there is no ready recipe for any region.

EAC Secretary-General Dr Richard Sezibera, while agreeing that Dr Kohler’s observations were valid and will be taken into consideration, said the region must continue to simultaneously work on the implementation of the Common Market as well as putting in place structures for the monetary union.

Financial experts at the meeting argued that a monetary union reduces currency risks and provides a greater incentive to trade but the challenge is the successful convergence of regional economies, which is likely to take longer due to the risks involved.

Last November, the EAC Heads of State Summit signed the Monetary Union Protocol, to be realised within 10 years, which they reasoned will progressively converge currencies and further expand regional trade.

Prior to achieving a common currency, the EAC partner states seek to harmonise monetary and fiscal policies and establish a common central bank. Kenya, Uganda, Tanzania and Rwanda already present their budgets simultaneously every June.

Eric Ogutu, an international trade consultant, argued that the advantages of a monetary union are reduction in transaction costs, consolidation of a single market, price convergence and asset market stability.

However, he added, the EAC still has a lot to do in the consolidation of a single market for the region. He noted that there has to be convergence within the region through co-operation of individual country central banks on monetary policy.

Source: The East African

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