East African Monetary Must be Fast Tracked

The East African Community (EAC) member states will continue to lose tourists and investments if their Monetary Union expectations are not met according to the integration schedule.

Mr. Johnson Klerk (not real names) from the United States would have found it easier to travel as a tourist or as an investor looking for business opportunities in East Africa than other regional economic groupings if the region had introduced a single currency unit.

He says that the Euro for example makes it a lot easier to travel in Europe because you know how much something is worth instead of making calculations in your head constantly every time you cross a border post.

He also says that for an investor or trader, a single currency makes it cheaper because you don’t have to keep exchanging money from currency to currency which in turn also costs money.

It can also take quite a bit of time finding a good currency exchange, standing in a queue and exchanging the money and by having one currency this cuts down on this cost and time lost.

The single currency would boost trade both inside and across the East African Community (EAC) member state’s borders, because transaction costs are simplified and reduced.

Companies that buy and sell goods to several countries inside the community would no longer have to deal in Kenya, Uganda and Tanzania shillings and the Burundi and Rwanda francs which are characterized by different exchange rates.

In addition, firms and individuals would no longer make losses from unexpected exchange rate changes, as there is only one currency.

To be able to make cross border transactions in East Africa at the moment, traders and individual travelers have to change their money into either the United States dollar, the Euro and Pound Sterling among others or convert it from one national currency to the other depending on the number of countries involved, a process that on average claims 20% of the money’s value.

A Burundi national importing goods from Tanzania taking them to Burundi will certainly need the currencies of Rwanda, Uganda, Kenya and Tanzania.

This is because despite the fact that he is getting the goods from Dar es Salaam and will be using Tanzania shillings to purchase the goods, they will need those other currencies to enable them make the journey through Kenya, Uganda and Rwanda.

This is the very reason why during his working visit to Uganda recently, the EAC Secretary General Ambassador Dr. Richard Sezibera urged East Africans to support the establishment of a regional currency to guard against the effects of currency fluctuations and boost cross-border investments and trade.

He said volatility of the Shilling in most East African countries has hampered investments especially in financial markets.

The shilling in Uganda recently depreciated against the US dollar by an average of 15% since January this year and at one time in July, it traded at a high UShs2,720 against the dollar.

The Kenya shilling depreciated from an average of Ksh80.03 in January 2011 to KShs89.34 by July while the Tanzanian shilling was not an exception.

Media reports indicate though that the currencies are slowly gaining ground but Amb. Sezibera said “we need to integrate because our currencies are weak due to the weak underlying economies,” he said.

Amb. Sezibera has also insisted that the protocol establishing the Monetary Union should be signed soon following the inauguration in January this year of the High Level Task Force (HLTF) to negotiate the Protocol to establish the East African Monetary Union (EAMU) whose implementation is slated for the next year.

Despite his commitment to the 2012 deadline, the negotiations were however postponed in April this year.

According to the EAC Head of Public and Corporate Affairs department, Mr. Richard Owora, the negotiations had been postponed since April due to other pressing official duties of the finance ministers in the EAC partner states.

“The other reason is that Uganda had just held elections and the Cabinet Ministers were appointed in May this year. It is not possible for the negotiations to continue when Uganda was not represented whereas all the five must be represented during negotiations,” he explained.

He said that therefore the negotiations are set to resume with a meeting of the High Level Task Force (HLTF) and the Sectoral Council of Ministers in Nairobi, Kenya during the second week of September from 11-12th, 2011.

“The HLTF will meet the sectoral council of ministers to brief them on how far they have reached on negotiations at a meeting to be held in Nairobi,” Amb. Sezibera said.