Clock ticks for East African Monetary Union

By Luke Anami

Crucial negotiations that will deliver a common currency to East Africans are yet to take place despite the deadline for the formation of the East African Monetary Union being too close.

Further, East African Community (EAC) partner states are yet to agree on one central bank that will coordinate the bloc’s monetary policy and act as the focal point for implementation of a single currency.

These revelations come as a 20-member delegation from EAC, left last Friday for Brussels, Luxembourg, Frankfurt and Berlin on a 12-day tour of European Union (EU) countries to study the EU’s economic and monetary operations.

After the formation of the customs union and the common market, the monetary union is the third pillar in the integration process of EAC countries , which ultimately aspire to be a political federation.

EAC Summit of Heads of State set March 2012 as the deadline for the conclusion of the bloc’s monetary union protocol.

But so far a High Level Task Force (HLTF) team of negotiators formed in January last year to negotiate articles that will form the basis of East African Monetary Union (EAMU) has only held five key meetings.

Negotiations were held last year in Arusha (January), Bujumbura (February/March), Mwanza (April), Kigali (September) and in Kisumu in December last year. The next round of negotiations is scheduled for Arusha next month.

However, single currency discussions have not featured prominently in these meetings prompting EAC Secretary General Ambassador Richard Sezibera on different occasions to reiterate EAC’s commitment to have the protocol concluded within the set timeframe.

WORLD CURRENCIES

"Currencies in the five EAC partner states have been fluctuating last year, that is why negotiations for a monetary union takes the first priority in our next meetings," Sezibera said in an interview with the Financial Journal soon after the conclusion of the 13th EAC Heads of State Summit held in Bujumbura last month.

"The deadline is achievable and we hope the task force will be able to conclude negotiations."

Sezibera said the single EAC currency would be more competitive vis-‡-vis the major world currencies such as the euro, US dollar and the Japanese yen, adding that it would reduce incidences of vulnerability of national economies occasioned by the slide of local currencies against the dollar.

"The monetary union backed by economic and financial integration, fiscal discipline and macro-economic convergence criteria will enable east African countries to compete more effectively against other economic blocs."

Kenya’s EAC minister and current chairman of EAC Council of Ministers, Musa Sirma, advanced the view that before the adoption of a single currency, EAC currencies should be first accepted by all the five partner states — Kenya, Uganda, Tanzania, Rwanda and Burundi.

"For instance we need to see if the Kenyan shilling can be used in either Rwanda, Uganda or Burundi before a single currency can be adopted," Sirma said at a previous interview.

The euro is convenient for travellers in Europe because one knows how much products and services cost across borders.

However, to make cross border transactions in East Africa at the moment, traders and travellers have to change their money into mainly US dollar, euro, sterling pound or convert from one national currency to another, a process that on average claims 20 per cent of the money’s value.

But should a single currency be introduced, companies that buy and sell goods within the bloc would no longer have to trade in Kenya, Uganda and Tanzania shillings and the Burundi and Rwanda francs, which are characterised by different exchange rates.

In addition, firms and individuals would no longer make losses from unexpected exchange rate changes.

Apart from a common protocol, harmonisation of EAC partner states statistical bodies is also hampering the attainment of the monetary union.

Central Bank governors of all the five EAC partner states have been holding regular meetings with a view of harmonising monetary policies. But laws governing statistics in each country are yet to be discussed in detail.

TASK FORCE

"Lack of standardised statistics within each partner state could delay the process if the national bureaus do not urgently meet and agree on a uniform measuring criteria," Dr Enos Bukuku, EAC deputy secretary general in charge of Planning and Infrastructure said.

Bukuku, who is leading the EAC-EU delegation was, however, optimistic that EAC is almost half way in the negotiating the protocol that will establish the EAMU.

The High Level Task Force has negotiated 49 articles so far — more than half the number of srticles in the draft monetary union Protocol after six rounds of talks held between January and December last year.

"The remaining items will be accelerated in the first half of this year at the EAC."

To inform the negotiations, EAC has commissioned various studies, which include one on the review of the EAC macroeconomic convergence criteria; and one on a harmonised monetary policy framework for the region, both of which are being handled jointly by the EAC and the International Monetary Fund.

Another study on a common exchange rate mechanism is being undertaken jointly with the International Growth Centre.

Articles negotiated so far are those on the scope of the monetary union; macroeconomic policy framework; monetary policy framework, exchange rate policy and exchange rate mechanism and instruments of monetary control.

Also negotiated are articles on harmonisation and coordination of fiscal policies; taxation and customs; national budget formulation processes.