John mashaka: East Africa Is not Ready For A Common currency

John Mashaka

Adoption of a common currency in the East African Federation seems inevitable based on the intense discussions and movements on the ground. As citizens and stake holders in the federation, we have a civic duty to advice and even challenge our governments when their actions seem to be going off-course. Catastrophic political and economic consequences underneath the monetary consolidation have particularly compelled me to trumpet my fear much louder in anticipation that our leaders will hear our voices.

I am not trying to paint a dooms day economic scenario; I am rather, trying to reiterate the reality from today’s vantage point. In short, our countries are not ready for monetary integration due to the severe and serious political and economic differences that needs to be harmonized. Kenya for example is in a serious political transition following its 2007 elections chaos. Its constitutional implementation has a long way to go before the country could see political stability. Tanzania on the other hand is battling its integration (Tanganyika and Zanzibar) headache, whose fate is not known.  

The countries have different economic policies and challenges. Kenya, Uganda, Rwanda, Burundi and Tanzania are facing enormous economic difficulties of their own including varying inflation rates. Based on Tanzania Bureau of Statistics, the country’s inflation rate as of October 2012 stood at 12.9%. That of Burundi is almost 18% while Rwanda’s stand at around 5.8%. In other words, to have a safe and stable currency, inflation in respective countries must stay in the range of 1.5 % through 3.0%. These numbers acceptable in the economic circles,  are unlikely to be attained in the current status of affairs within the region

East African member nations are immensely divided on Immigration issues. While Rwanda has opened its doors to regional immigration, In order to tame unemployment, Kenya and Tanzania have made it exceptionally difficult for foreigners to obtain resident and work authorization. Tanzania work permits are extremely costly, while Kenya permits are straight discriminative, requiring applicants to be 35 years of age, and be able to make at-least $24,000 a year. These are serious policy differences likely to hamper a smooth monetary consolidation between the member states

The initial East African Community quickly crumbled upon its creation, simply because member states lacked cohesion. Frequent feuds among member nations, aggravated by quest for hegemony status over the union, led to the sudden-collapse of the union.  Half a century later, our countries are more polarized than they were a few years after their independence. Solution to the instability in the neighboring DRC, chronic corruption in Burundi, tribal and ethnic differences in Kenya both crucial and instrumental factors in establishing a stable currency; do not seem to be in sight.

Monetary integrations require essential harmony and stability in the context of economic, social and political The proposed monetary union is an imitation from the West. Despite the European Economic Community, and now the European Union’s fifty-five year existence, its common currency, the Euro, only came into existence seventeen years ago. And out of the twenty-seven member countries, only seventeen member states adopted the EURO as their currency. Britain opted out and maintained its pound, and thus far remained out of the Euro-zone crisis.

It took the Europeans hundreds of years before they could form the European Economic Community in 1957, and subsequently EU in 1993. On the other hand, the East African Community was hastily formed in 1967, just to collapse ten years later in 1977 due to serious political differences, which remains unresolved. In retrospect, watching the economic tremor in the Euro-zone, one will logically question whether our political and fiscal leaders are watching the movie from the same screen and perhaps sense something so scary in their forward march into an economic dark-hole in the name of monetary union.

Greece is currently on economic hospice care, and so are Portugal and Spain; requiring the debt laden European Central Bank to bail them out. The Euro-zone crisis has proven to be a great burden and a nightmare to the single stronger German economy. The Europeans have no uniform fiscal rules. Their bond-market enforcers have not always been attentive to enforce the needed rigid fiscal codes of conduct; they have varying risk of sovereign default across the Euro zone. The EU member states have uneven recovery plans, with each central bank trying to maintain laxity in its tax system.

During the formation of the Euro, it designers assumed that, without rules, fiscal mistakes by one member state would impose cost on all. German’s initial worry, that unchecked deficits would become a burden on the EU central bank to monetize public debts, and financially sound nations would be forced to bail out the spendthrift and debt-holics like Greece. A prophecy that came to be Germany’s nightmare

After more than half a century of fiscal and economic study, the Europeans have no cure to their economic nightmare. The hasty East Africans, monetary union is a catastrophe in the making because its member countries have no clear fiscal policies to save their hailing, donor dependent economies. Leave alone bailing out their counterparts should the Euro-zone style fiscal crisis emerge. In short, the East African Federation is not prepared to handle the bigger problems of bailing out member states in case of financial crisis. Kenya for example will be in position to bail out Tanzania, should her southern neighbor run into a fiscal collapse. Neither will Rwanda

Need for uniform wages, relative to the cost of labor among member nations, under the same currency, is a big challenge that requires many years of study and experiment before it can be implemented. Loss of national pride and sovereignty are other serious problem that have not been fully addressed and requires national consensus or referendum. I am therefore urging President Kikwete, Hon. Samwel Sitta and our legislatures in the East African Legislative Assembly to earnestly deliberate on these facts before committing our nation into a disaster.

The list of potential problems related to the proposed single currency is long. The regional integration should however, continue only, with free movement of goods and people. Until internal political, economic, social division and mismanagement of resources within member states are resolved, until clear fiscal policies are put in place to address all possible eventualities, it will be in the best interest of our respective countries to tread cautiously into this fiscal and economic tremor or a trap called East African Common Currency.                                             

Mungu Ibariki Tanzania

John Mashaka, (Mwanza-Tanzania)
Mashaka.john@yahoo.com