We can do without a poorly formulated monetary union

From left: EAC Presidents Pierre Nkurunziza, Jakaya Kikwete, Uhuru Kenyatta, Yoweri Museveni and Paul Kagame during The 15th Ordinary Summit of The

 

By Odhiambo Ramogi

In Summary

• Integration is like marriage, each person wants to keep their finances private. You are never fully prepared and the basic preparation done is adequate.

A few weeks back I was delighted to hear that the East African Community is now on the path to becoming a monetary union. It was refreshing to note that the community is finally implementing what it had planned to do in 2012. But my joy was shortlived when I got the details of the protocol.

As a matter of background, the EAC began with the aim of establishing a customs union. The union was established in 2005 and ran till July 2010 when the common market came to force. At


establishment, the common market was to be in force until 2012, at which point EAC would revert to a monetary union, having one currency.

However, due to delays occasioned by lack of consensus on key issues, the monetary union has delayed until the move to a sign a pre-cooked protocol a few weeks back in Uganda.

First, I am in agreement that we need a common currency. It will make business faster, reduce inflation and attract investment as a foreigner will see the region as one big market and not five different entities. Removing the need to exchange currency in the region will also eradicate market inefficiencies and create a free and easy flow of goods and factors of production.

However, the arrangement by the European Union has left the world with a few lessons to learn. After the economic recession of 2009, some economies in the EU were thrown off balance and were unable to service their debts. In this category were Spain, Greece, Cyprus and the republic of Ireland. It took the intervention of the larger economies like Germany for these countries to get back on their feet.

What this calls for is prudent fiscal and monetary management for the EAC member countries so that by the time any country says “I do”, we are not being tied down to debts and a mismanaged economy.

The drafters of the monetary union had this fact in mind. They included articles that required member states to maintain a debt ration of less than 50 per cent of GDP, a continuous inflation rate of less than eight per cent, among other conditions. Later on, these were silently withdrawn from the protocol so that they are not a requirement.

While the monetary union is necessary, an open union will spell doom for the local economy in years to come.

Contrary to many peers, I think the region is ready for integration. We have aligned our financial calendars, instigated a working regional legislative assembly and a judiciary. We have a working secretariat collecting data and monitoring implementation. We have put in place a common market and while it is yet to be fully implemented, it is functional.

Integration is like marriage, each person wants to keep their finances private. You are never fully prepared and the basic preparation done is adequate.

I oppose the open period of 10 years to implement the protocol. I wish they entrenched the implementation framework on specific dates within five years before member states change their minds. We can do without a poorly formulated monetary union.