East African trade bloc approves monetary union deal

KAMPALA Sat Nov 30, 2013 12:35pm EST

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KAMPALA (Reuters) - The leaders of five East African countries signed a protocol on Saturday laying the groundwork for a monetary union within 10 years that they expect will expand regional trade.

Heads of state of Kenya, Tanzania, Uganda, Rwanda and Burundi, which have already signed a common market and a single customs union, say the protocol will allow them to progressively converge their currencies and increase commerce.

In the run-up to achieving a common currency, the East African Community (EAC) nations aim to harmonize monetary and fiscal policies and establish a common central bank. Kenya, Uganda, Tanzania and Rwanda already present their budgets simultaneously every June.

The plan by the region of about 135 million people, a new frontier for oil and gas exploration, is also meant to draw foreign investment and wean EAC countries off external aid.

"The promise of economic development and prosperity hinges on our integration," said Kenya's President Uhuru Kenyatta.

"Businesses will find more freedom to trade and invest more widely, and foreign investors will find additional, irresistible reasons to pitch tent in our region," said Kenyatta, leader of the biggest economy in east Africa.

Kenyatta, who is due to face trial at the International Criminal Court on crimes against humanity charges in February, took over the chairmanship of the bloc from Ugandan President Yoweri Museveni, hosting the summit.

Kenya has launched a $13.8 billion Chinese-built railway that aims to cut transport costs, part of regional plans that also include building new ports and railways.

Landlocked Uganda and Kenya have discovered oil, while Tanzania has vast natural gas reserves, which require improved infrastructure and foreign investment so they can be exploited.

Tanzania, where the bloc's secretariat is based, has complained that it has been sidelined in discussions to plan these projects, but Kenyatta said the EAC was still united.

Kenneth Kitariko, chief executive officer at African Alliance Uganda, an investment advisory firm, said the monetary union would boost efficiency in the region's economy estimated at about $85 billion in combined gross domestic product.

"In a monetary union, the absence of currency risk provides a greater incentive to trade," he said.

Kitariko said, however, that achieving a successful monetary union would require convergence of the union's economies, hinting that some challenges lay ahead.

"Adjusting to a single monetary and exchange rate policy is an inescapable feature of monetary union ... but this will take time and may be painful for some," he said, referring to the fact that some countries may struggle to meet agreed benchmarks.

(Writing by James Macharia; Editing by Alistair Lyon)

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Comments (3)
Gulled wrote:
This is something that the rest of the east African nations – mainly Somalia, Djibouti, Sudan and Ethiopia -should be wary of. Frankly I wouldn’t want Somalia to ever even think of takin’ part in something like this. Just look at the Euro zone nd the amount of trouble it has gotten its hands into. To the most of us, the first thing that comes into mind when one thinks of monetary unions are all the social, economical nd political repercussions that are just too painful nd costly to be ignored once nd if something goes terribly wrong which in the case of Africa I’m sad to say is very much likely. To the Kenyan government who apparently regards itself as the Germany of the Euro zone in east Africa, you lot would be very wise to understand that without a credible private sector coupled with flexible fiscal policies, loosin’ your monetary independence is not worth it in any circumstances nd would eventually lead to a painful death. Somalia nd Djibouti should stay out of this.

Nov 30, 2013 7:15pm EST  --  Report as abuse
Gulled wrote:
This is something that the rest of the east African nations – mainly Somalia, Djibouti, Sudan and Ethiopia -should be wary of. Frankly I wouldn’t want Somalia to ever even think of takin’ part in something like this. Just look at the Euro zone nd the amount of trouble it has gotten its hands into. To the most of us, the first thing that comes into mind when one thinks of monetary unions are all the social, economical nd political repercussions that are just too painful nd costly to be ignored once nd if something goes terribly wrong which in the case of Africa I’m sad to say is very much likely. To the Kenyan government who apparently regards itself as the Germany of the Euro zone in east Africa, you lot would be very wise to understand that without a credible private sector coupled with flexible fiscal policies, loosin’ your monetary independence is not worth it in any circumstances nd would eventually lead to a painful death. Somalia nd Djibouti should stay out of this.

Nov 30, 2013 7:16pm EST  --  Report as abuse
SAMUELSBURG wrote:
The ultimate purpose for any monetary union is to boost trade among the members and this is self evident with the European Monetary Union. Unfortunately, the E.African countries have almost nothing to trade with each other. This is true because these countries import almost every thing from China with the exception of Kenya which has a few companies in other E.African member states. For this reason,only Kenya will benefit from the union both in the short & foreseeable future will.
These “thugs”-politicians particularly Uganda are only following a bandwagon but they have no intent of benefiting from the union in the sense of increasing trade. They are only part of the union simply because they think its “cool and modern” to be part of the union since its a success in Europe.
Of course, a Monetary Union from an Economic perspective is a good move but will these thugs of ours give the New Common Central Bank the independence it requires when it comes to inevitable grave financial troubles like the global financial crisis of 2008. Of course, not, they will abandon the common currency to store their debt markets. These thugs are only using the currency union to rob us more and more, there is absolutely nothing these thieves can do.
Ivan Samuel SSEBADDUKA,CFA

Dec 02, 2013 7:00am EST  --  Report as abuse
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