East Africa's hope for a common currency: Opportunites and risks

Regional integration speeds up in African countries that need cooperation in order to realise their transformation. Aiming to establish “The African Economic Community” until 2028, Africa’s unity and integrity is also necessary in terms of its integration to the global economy.

 

African countries that have predominantly small and medium economies need cooperation in order to realise their transformation. The partnership model, which is described as regional integration, aims at improving general economic performance for the benefit of the continent based on current necessities, encouraging intra-continent trade, attracting direct foreign investment and reaching the Millennium Development Goals. 
 
The East African Community (EAC) that was founded by Kenya, Tanzania and Uganda in 2000 was extended with the participation of Rwanda and Burundi in 2007. Recently, membership appeals from countries like Sudan, Southern Sudan and Somali have been vetoed due to political and security issues.
 
With a population of nearly 140 million and a total gross domestic product of over $100 billon, the Community’s primary goals are the liberalisation of commerce throughout the region, free movement of capital and labour. EAC, which established Customs Union in 2005 and Common Market in 2010, plans on taking the existing partnership forward. Monetary and political union are defined as the main goals of the upcoming period. 
 
The Monetary Union Protocol that was signed by member countries on November 30, 2013, is defined as an important milestone that will pave the way for achieving a common currency within 10 years. As a result, it is planned to establish a common currency until 2024. It is maintained that monetary union, together with minimum transaction costs, will make the Community a big economic bloc. However, it is obvious that East Africa is not ready for a common currency in today’s circumstances. Because, in order to implement this, the industrial sectors in member countries should first of all be able to receive a sizeable share from production. However, the countries except Kenya have a long way to go in terms of industrialisation. Moreover, exchange differences in said countries’ currencies constitute another obstacle. 
 
Countries in the region attempted a similar move in the 1970s with unsuccessful results. Kenya, Tanzania and Uganda’s joint venture was discontinued in 1977 due to political-ideological differences of the countries and their lack of suitable mechanisms for an equitable distribution of economic gains in said period. Today, these countries stand closer compared to the past, but it is obvious that they need more time. The fact that even the EU has problems in terms of common currency is a recent example on how EAC should approach this issue with more caution. The developments in the region, together with the aforementioned facts, are significant. 
 
The EAC region which has come to the attention of international investors has reached a growth rate of 6% in the last decade. Moreover, in parallel with moves like Customs Union and Common Market, the total trade volume between member states which was $2.2 billion in 2005 has increased 86%, reaching $4.1 billion in 2010. Even though this volume is definitely rather low, the increasing number of common projects in areas like infrastructure, transportation, energy and tourism is an important beacon of hope for the future. The fact that countries like Kenya, Uganda and Rwanda, which have been dealing with serious problems in their bilateral relations until recently, have been united under the same roof and undertook common projects seems to mean that they buried the hatchet.
 
Many ongoing infrastructure projects in the region have been determining factors in terms of encouraging direct foreign investments. During the 3rd Tripartite Infrastructure Summit hosted by Rwanda between October 26 and 28, 2013 and organized by Rwanda, Uganda, Kenya and Southern Sudan, there has been general consensus on speeding up regional development through infrastructure, commerce, political and economic integration. At the end of the summit, the three EAC member countries decided to establish a “Special Customs Zone.” According to this, it has been decided that product transfer from Mombasa to Kampala will be reduced from 18 days to 5 days, while product transfer from Mombasa to Kigali will be reduced from 21 days to 8 days.
 
Presidents of Kenya, Uganda and Rwanda, who met last June, signed a memorandum of understanding foreseeing the construction of two oil pipelines throughout East Africa. One of these pipelines will carry Southern Sudanese oil to the Lamu Port in Kenya, while the other will extend to Uganda and Rwanda by the expansion of the existing pipeline between Kenya’s Mombasa Port and Eldoret. The reduction of energy costs will be the foremost step to support East African development. 
 
In addition to increasing exploration works in the region, the discovery of oil in Kenya and Uganda and natural gas and uranium deposits in Tanzania raised the member countries’ hopes about the future. 
The Rift Valley is the leading region in terms of geothermal energy potential and it is likely that investments will focus on the area in coming years. The Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor Project, which is one of Africa’s largest infrastructure projects, encompasses the construction of railroads, oil pipelines and refineries, as well as a big port. The government of Nairobi specifically announced that thanks to this project, officially launched by Kenyan, Ethiopian and Southern Sudanese presidents in March 2012, they expect significant financial flow to the country. 
 
First steps have been taken for long term projects in terms of the development of rail transport. The 2350 kilometres Rift Valley Railroad Project will initially link Mombasa to Nairobi and will later extend to Uganda, Rwanda and Southern Sudan. The construction of the 450 kilometres road between Mombasa and Nairobi is planned to be finished in three years. The project realised with credits from the Beijing government, will dramatically reduce high transport costs. 
 
Tourism is one of the leading chapters within the context of regional cooperation. While Kenya and Tanzania are the countries attracting the biggest number of tourists, Uganda is making a significant attempt to increase investments in this area.  As of January 1, 2014, tourist who wish to visit EAC members Kenya, Uganda and Rwanda have been given the opportunity to visit the three country with a single visa for $100. The other two members of the Community, Tanzania and Burundi have not yet been included into this procedure. 
 
It is no surprise that the US and China have been the most prominent foreign partners of EAC. The US and EAC representatives who met in Washington last year, have issued a joint press release after signing a “Trade and Investment Framework Agreement” and said they would pursue a new cooperation, increase bilateral trade and investments in order to create more business opportunities in accordance with the interests of American and East African people. Shortly after this meeting, US President Barack Obama’s proposal of a new trade and investment partnership through a regional investment agreement was announced to the public.
 
 On the other hand, a “Partnership Fund” linked to the Resource Mobilisation Office has been established to facilitate the implementation of various projects and programmes. Germany, the United Kingdom, France, Belgium, Japan and Canada are among the countries supporting the fund.
 
It is impossible to disregard the issue of security in this highly competitive region. It is observed that especially Uganda and Rwanda have been interfering in conflicts in neighbouring countries more than necessary with the support of the White House. It is commendable that Jakaya Kikwete’s government in Tanzania has been able to follow a successful policy of balance between the US and China compared to other countries.
 
As a result, the East African bloc that aims at establishing a multidimensional partnership between its members is becoming the subject of more and more studies with its investment opportunities and security risks. 


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