Monetary Union, and the future of Tanzanians

President Uhuru Kenyatta yesterday defended The East African Community Monetary Union Protocol to be signed at the Heads of State Summit on November 30, saying it is the logical outcome of integration.

President Jakaya Kikwete will join four other heads of state in Entebbe this weekend to sign up for the EAC monetary union. The move will have a major impact on the lives of millions of Tanzanians and the rest of East Africans in next decade.

All things East Africans seek in integration will be multiplied in the monetary union, President Kenyatta said in a speech at the East African Legislative Assembly (Eala).

“Moreover, the cost of transacting in different currencies and the risks associated with adverse exchange rate movements in respect of intra-community trade will be eliminated,” President Kenyatta said in Nairobi. He is expected to be the next EAC chair.

 The protocol is expected to be implemented within a decade. President Kenyatta said this would also assure investors that East Africa is “a genuine single market and an attractive place for business”.

“Politically, the Monetary Union is a statement of our partner states’ commitment to a shared destiny as East Africans and not just a group of neighbouring states,”  President Kenyatta added.

 But what does East African Monetary Union mean to the 140 million people in the five countries forming the regional bloc? What will be its implications in our day-to- day business and in regional trade? What will the signing of the protocol mean to the future of East Africa?

 According to the details gathered by The Citizen, the first qualification for the Eamu is that all partner states implement the customs union and common market in full.

 To put things into perspective, this means removing all non-tariff barriers to intra-regional trade in the EAC. It means allowing firms in the services industries, such as transport firms, that are domiciled in any partner state to sell their services without restriction in all other partner states.

All this implies accepting without preconditions the free movement of labour throughout the EAC. Tanzanians, for example, should be able to live and work in Kenya or Uganda or anywhere in East Africa without restrictions and without having to pay for work or residency permits.

In that new regime, free movement of capital across borders within the EAC will be guaranteed. Capital mobility within the EAC will be meaningful only if each partner state imposes no restrictions on the purchase of assets by investors from any other partner state.

Five years ago, the Central Bank of Tanzania barred Tanzanians from buying shares in East Africa’s most profitable company, Safaricom, because buying stakes in a foreign company would be interpreted as capital flight. Such laws would be abolished under the monetary union.

According to Uganda’s Central Bank Governor Emanuel Tumusiime, a genuine single market without any restrictions on the movement of goods, services or factors of production, is an essential foundation of East African Monetary Union for two reasons:

First, the benefits of monetary union to the partner states are positively correlated with the amount of trade between the partner states and the degree of integration of their economies. Unless there is very substantial trade within the EAC, there will be only minor benefits to be derived from a common currency, Mr Tumusiime says.

East Africa will not be able to attain the fullest degree of economic integration until all artificial barriers to intra-regional trade and the movement of factors of production within the region is abolished.

The EAC member states will inevitably suffer “idiosyncratic economic shocks”. These are shocks that affect the economy of one member state but not those of others. 

For an economy with its own currency and an independent monetary policy, the optimal response to a macroeconomic shock will usually involve monetary and exchange rate policy. 

For example, an economy might adjust to a negative terms of trade shock through a depreciation of the real exchange rate to restore external balance.

It is self evident that membership of a monetary union means that national authorities cannot use either monetary or exchange rate policy to adjust to an idiosyncratic macroeconomic shock, leaving them more vulnerable to the adverse consequences of such shocks.

Remove trade barriers

Speaking in Nairobi yesterday, EALA Speaker Margaret Zziwa said the assembly’s members are impressed by the steps taken by the Kenyan government to remove barriers to trade in the region.

She said this has reduced considerably the time cargo takes to move from the port of Mombasa to Malaba border point from three weeks to six days.

Dr Zziwa said the directive to have the Customs’ boss at the Kenya Revenue Authority stationed in Mombasa and not Nairobi had also helped in a big way.

EALA has been meeting at the refurbished County Hall chambers.

Adam Kimbisa, a Tanzanian member of the assembly, stole the show while giving thanks to the President on behalf of his colleagues with remarks laced with humour.

As he congratulated President Kenyatta on his election, he said his name had changed from Uhuru, which means freedom in Kiswahili, to “Utumwa”, which means servant.
Source: The Citizen, reported from Dar es Salaam, Tanzania and Nairobi, Kenya
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