The signing of the Monetary Union Protocol by the five East African states on Saturday has set the region on a path to a single currency in ten years time.
The event saw the convergence of diplomats and government officials in Uganda at the Speke Resort Munyonyo.
A journey that has been marked with numerous talks and diplomatic challenges, the stage is now set for an East African Monetary Union. The five East African countries – Rwanda, Burundi, Kenya, Uganda and Tanzania – are expected to follow the protocol that will eventually result in a common currency.
The protocol lays out various exchange rates and monetary policies that will have to be harmonized in order to create a stable and strong currency. This financial road map spans out over ten years.
Kenya’s president, Mr. Kenyatta was hopeful that the union would ease the costs of doing business within the region and consequently attract more investors.
More Challenges Ahead
This is of course a big moment in the history of the region which has seen its share of ups and downs over the years. Revived in 2000 after collapsing in 1977, the East Africa Union has been slow in implementing various policies meant to bring the member countries closer together.
In 2000 a Customs Union Protocol was signed. It was meant to eliminate tariffs within member countries. In 2005 another protocol, the Common Market Protocol was established. The protocol stipulated a freedom of movement of labor and other factors of production within member countries. None of these protocols are yet to be implemented.
The Monetary Union Protocol dictates that the implementation of these two protocols are prerequisites to a singular currency. With member states already disagreeing on various smaller issues, the journey ahead is definitely not an easy one.
Other obstacles that the region has to overcome include the set up of a regional central bank and creation of independent financial regulatory authorities. Harmonization of fiscal policies also has to be achieved before any monetary union can be implemented.
Voices of Caution
At a meeting in Arusha, various economists and financial experts voiced their worry concerning the fast tracking of the Monetary Union Protocol.
Professor Paul Collier from the University of Oxford warned that East Africa could wind up like the Eurozone, which is currently muddled with financial problems. He warned that the region was not prepared for a monetary union citing that the European Union took 44 years to be created.
Professor Collier further cited the economic divergence and imbalance among member states as a high risk factor. He advised member states to set out well defined incentives for creating the union and set out stiff penalties for those countries that fail to follow set policies.
Rays of Hope
Others were confident that the signing of the protocol has set a strong foundation on which an ultimate political confederation goal can be achieved.
Already, fiscal calendars of all East African countries have been synchronized and even though this is only a minute part of the journey, it breathes hope into a previously “dead” union.
By Isaac Mathu