Africa Rising: Could a shared currency in East Africa avoid the euro's woes?
As Europe deals with a debt crisis exacerbated by its shared currency, the East African Community is forging ahead with discussions on a monetary union – and how to avoid Europe's mistakes.
Kampala, Uganda — • Africa Rising is a weekly look at business, investment, and development trends.
Hassan Mubiru should be just the sort of person to welcome plans to introduce a single currency in East Africa.
Since the East African Community (EAC) introduced a common market last year, Mr. Mubiru says greater regional integration has seen taxes slashed on the fish he exports from Uganda to its regional neighbors, business become easier, and profits rise.
But as he stands watching a half-dozen employees filleting tilapia fish in teeming Gaba Market on the shores of Lake Victoria, Mubiru says he is skeptical about talk of starting a common currency in the region.
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"I can't see how it would work," Mubiru says. "Some countries are big and others are small. I don't think that they can work together, or that it would really be good for my business."
While Mubiru admits that he has never heard of the crisis a continent away that is currently engulfing the euro, his views might strike a chord with many people in Greece or Italy.
But while Mubiru may have reservations about the idea of a single currency, policymakers and economists from the EAC – a five-nation regional body which comprises Uganda, Kenya, Tanzania, Rwanda, and Burundi – are forging ahead with discussions for regional monetary union.
And they are looking at the crisis currently unfolding in the eurozone for lessons on how not to do it.
For Enos Bukuku, the EAC's deputy secretary general for planning, the region would require more integration and coordination between the member states on issues like budget control and debt management and more powers to punish member states if they fail to meet their targets.
"For the eurozone ... maybe there wasn't well coordinated fiscal policy management and enforcement. If there are benchmarks that are agreed upon, it would be expected that the community would also agree on sanctions and enforcement mechanisms," Mr. Bukuku said on the sidelines of the fifth round of negotiations on monetary union, held in the Ugandan town of Entebbe in early November.
Originally, East African officials had hoped to hammer out a draft protocol for monetary union by March 2012, but a series of delays and the slow pace of negotiations mean that the talks have not yet reached the halfway stage and the 2012 deadline is "not feasible," Bukuku said.
But while some argue that the euro crisis should make East Africa think again about introducing its own common currency, Bukuku says that the benefits still outweigh the dangers, and that just because powerhouse economies in Europe are struggling with monetary union does not mean that the small economies of East Africa cannot cope.
"The issue of size of the economy does not apply here. The issue is to adhere to fiscal discipline, and in this case the eurozone countries have not lived up to what was in the treaty," Bukuku said.
And East Africa only needs to look at its own history for evidence of a joint currency's potential. For much of the decade after independence, Uganda, Tanzania, and Kenya shared a currency. "And that was a strong currency trading on a par with the British pound and based on a bedrock of fiscal responsibility," Bukuku said.
But while officials may be optimistic about introducing another common currency, the current economic climate in the region is deeply unfavorable.
Current economic turbulence in the region means that none of the member states look anywhere near meeting criteria to join a single currency.
Over the past year, inflation around the region has spiked – reaching more than 30 percent in Uganda, for example – and local currencies have tanked against the dollar.
But officials remain hopeful.
"It is challenging, but it is possible," Bukuku said. "It is just difficult for now to say exactly when we will have a single currency in our hands."