News / Africa

East Africa Looks Towards Single Currency by 2012

Michael Onyiego

With the East African Community Common Market Protocol now in effect, the region is looking to launch a single currency by 2012.  Many hope the integration will break down economic barriers across the region, but there is much work to be done before the regional dream is realized.  

The members of the East African Community, Kenya, Rwanda, Tanzania, Burundi and Uganda, officially launched the Common Market Protocol on July 1.  Under the protocol, the region hopes to unlock the economic potential of its vast natural resources and more than 130 million inhabitants.

With the start of the common market, member states have agreed to open their borders to each other and allow goods and services to move between countries without fees or restrictions.  The protocol has also removed barriers for people, allowing citizens in the region to live and work anywhere in East Africa without work permits.

The common market is essentially the first phase in the vision for regional integration.  By 2012, the East African Community hopes to implement a single currency and monetary union for member states.

Analyst on the Kenyan economy Robert Shaw says integration makes perfect sense for East Africa.

"In the global world, a single country, and particularly a single African country which has a very small economy, it makes sense for there to be a greater bloc, for two reasons:  One, the potential for trading within that block is great, and we've seen it.  We've seen it even with the tentative moves that have gone so far," said Shaw.  "The increasing trading between Kenya, Uganda, Tanzania, to a lesser extent Rwanda, etc. has increased year after year.  It makes sense.  The second point there is, that the bigger your market, that is much more attractive for investors, locally and internationally."

Investors are already taking notice of the region's potential.  According to the United Nation's 2010 World Investment Report, the region received more than $2 billion worth of foreign investment in 2009 alone.  Shortly after the common market became operational, Turkey announced it would establish an export processing zone within the East AFrican Community to expand trade with the region.

The promise of the new market is also attracting new countries.  South Sudan is widely expected to become an independent state after a referendum this January.  Analysts such as Robert Shaw believe the new state will opt to join the EAC.

But there are many obstacles to overcome before a single east African currency can become reality.

The common market took effect on July 1, but Shaw notes there are still many barriers preventing its full implementation.  All of the EAC members agree in principle to the benefits of the expanded market, but there are differing visions for achieving it.

While Kenya and Rwanda have already moved to eliminate work permit requirements for east African citizens, Uganda, Rwanda and Burundi have retained their requirements.  The Ugandan government has also advocated for regional work permits rather than their complete elimination.

And despite the elimination of visas for citizens in the region, many are still subject to restrictions at the border.

But many in the East African Community remain confident that a monetary union can be achieved by 2012.

EAC Deputy Secretary General Alloys Mutabingwa says that concerted regional reform will lay the groundwork for a common currency.

"It is sounding ambitious, but we are optimistic we will achieve that target.  For the common currency to effectively be in place, we are looking at three main things to be accomplished.  One is the common market itself having to be effective,"Mutabingwa said.  "Two is the convergence of most of our macroeconomic policies.  Three is the legal side; the laws governing the common market having to be integrated."  

According to Mutabingwa, EAC members will start negotiations soon to unify regional policy regarding the market.  The deputy secretary general also told VOA that mechanisms such as an East African Community Monetary Institute were being established to guide the integration process and oversee the creation of the common currency.

If the monetary union is established, it could be a step towards an even more ambitious venture.

The stated goal of the East African Community is to set up a political federation by 2015.  While expectations for the proposed state range from a European-style union to a fully integrated east African nation, observers believe the federation could be an economic and political leader in Africa.

But the success of the federation is dependent on the success of the current economic integration.  If the common market and the monetary union are properly implemented, they could create a new country on the continent.

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