Has the eurozone crisis made shared currencies passe? East African leaders don’t think so, and they’re looking to Europe for an example of what not to do.
Economic integration isn’t a new idea for the East African Community. Its five member states&mdashUganda, Kenya, Tanzania, Rwanda, and Burundi&mdashalready have free movement of goods and labor, thanks to a customs union and, since last year, a common market (a type of trade bloc). According to EAC Deputy Secretary General Dr. Enos Bukuku, a shared currency would build on this by controlling price instability and exchange rate volatility among the states, writes In2EastAfrica. He says this would encourage businesses to invest and spur development in the region.
An EAC monetary union could face many of the same problems Europe has already experienced. Critics point out that the five EAC states’ economies differ greatly in size and scope. Kenya’s GDP is $31,408,632,915, while Burundi, with a fifth of Kenya’s population, has a GDP of $1,610,544,922, according to the World Bank. This could mirror the dynamic between powerful European states like Germany and the EU’s smaller states like Greece, as Tanzanian IMF head John Wakeman-Linn told The Financial Times. But EAC Secretary-General Dr. Sezibera doesn’t think this will be an issue. “If you look at EAC trade statistics, all the partner states have gained. I do not think Kenya will swallow up the other countries; it will only enrich the economic base of the community,” he said in an interview with The East African.
To the citizens who will be affected by these changes, the European Union’s tribulations are probably either unknown or seemingly distant, but EAC leaders are paying attention and believe that they can avoid Europe’s mistakes. At a round of negotiations in Uganda earlier this month, Bukuku said "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," reports The Christian Science Monitor. He also cited the issue of fiscal discipline and said that many of Europe’s problems are a result of the eurozone countries not having “lived up to what was in the treaty.”
Economists like the World Bank’s Paul Collier warn that a currency union could hurt East African economies, according to allAfrica.com. Others feel it’s simply inappropriate in the current economic climate; The Financial Times cites shrinking regional growth and depreciating currencies as discouraging indicators. But Wakeman-Linn disagrees, telling the newspaper that even if a common currency isn’t feasible, putting the necessary components in place could help East Africa:
“All the things that they need to do to achieve a common currency – integrate financial markets, trade policy, labour markets, capital markets, statistics databases, develop easy mechanisms for exchanging each others’ currencies – all of these things would be extremely valuable and would help develop the regional economy, and so these are things they should do.”
By revealing the cracks in the world’s financial systems, the global financial crisis has provided developing nations with a handy "What not to do" guide. EAC leaders are strong in their belief that a shared currency is possible, even if there are challenges along the way. “The monetary union is a possibility, not a dream,” Dr. Sezibera told The Financial Times. They originally hoped to implement the currency union by next year, a deadline that has proven to be overly optimistic.
With the lessons they’re learned from the euro’s failures, they hope to avoid some of the bumps along the way.
Margo Conner is a senior at Lewis & Clark College in Portland, Oregon, majoring in international affairs. Read her other contributions to Global Envision.