OPINION: Hard Work On The East African Monetary Union Should Begin Now
It is worth noting that all the five partner states have ratified the protocol establishing the Monetary Union, even though this has happened several months later than the July 2014 deadline that had initially been agreed upon.
This sets the stage for implementation, which from all indications will be a difficult path ahead. For background, it should be remembered that the Customs Union and Common Market protocols all lagged behind by several years. To date, there are still many sticking points that have to be ironed out. Partner states continue to erect non-tariff barriers despite the existence of these protocols.
This is best illustrated by the tiff between Kenya and Tanzania regarding tourist vans.
While Kenyan-registered tourist vans have for many years been prevented from entering Tanzania’s national parks, Kenya recently retaliated by imposing similar measures that prevent Tanzania’s vans from accessing the Jomo Kenyatta International Airport.
In addition, we have not fully opened up our economies to receive manpower from other partner states.
NON TARIFF BARRIERS
A common qualifications framework for mutual recognition of equivalent standards is in the offing, and hopefully it will make it easier for qualified East Africans to live and work across the region.
Many agreements remain on paper, and new non-tariff barriers are erected to replace those removed.
Yet, it is not possible to achieve monetary union without a functioning Customs Union and Common Market. How do East African countries propose to go about these teething problems?
A number of activities to kick-start the 10-year process for establishment of the Monetary Union are slated for this year.
The first one, needless to say, is full implementation of the Customs Union and Common Market protocols.
The second item is establishment of an East African Monetary Institute, which will be the organization charged with doing much of the groundwork in preparation for monetary union and a single currency regime. Specifically, the establishment of this vital body will necessitate initiating the legal instruments for its creation; identifying the host partner state; signing host party agreements; and eventually its operationalization.
As the region moves toward this vital stage of the integration process, utmost goodwill will be absolutely essential.
EAST AFRICAN CENTRAL BANK
This calls for opening up of governance structures to mutual scrutiny; high-level political and economic co-operation; functioning dispute resolution mechanisms; and avoidance of any measures by the partner states that could undermine mutual trust and confidence.
For a single currency regime to operate successfully, the partner states will need to harmonize their various financial systems; they will need a high degree of macroeconomic convergence; and they will have to establish a host of joint but independent institutions that do not take direction from any individual partner state.
The main one among these institutions will be the East African Central Bank, which will oversee a single exchange rate and monetary policy over the single currency area. It will also oversee the new system of central banks in the region.
The Monetary Union will therefore have far-reaching implications, and it is understandable that the partner states may sometimes appear to falter in their resolve.
After all, there are grave implications when it comes to national sovereignty. However, important lessons can be learnt from other regional blocs that have taken this path, especially the European Union.
FREQUENT CURRENCY EXCHANGE
That should strengthen the region’s resolve to proceed with the envisaged plans.
The gains to the region’s citizens will be enormous.
Losses incurred through frequent currency exchange will be no more; a common currency understood by all will give a single parameter of prices and inflation across the region; and visitors as well as foreign investors will only have to deal in one local currency when transacting in any of the partner states.
More than anything else, the single currency regime promises to bring East African together in a realization of their common destiny.
This will be a powerful tool for integration of peoples at the grassroots level.
That is why our leaders must not bring down the pace of implementation of the Monetary Union.
There can be no excuse for delays over such a critical project.
By Isaac Mwangi