East African Community monetary union: a formidable rival to the Eurozone?

By the time the ink of this article dries, probably the East African Community (EAC) heads of state will have signed the monetary union in Kampala (30 November, 2013), effectively paving a way for a single currency for Uganda, Kenya, Tanzania, Rwanda, Burundi and those other countries that will join the community later on. This is no doubt a welcome development for the citizens of the sub-region. The benefits of monetary union are exciting: a single currency; low transaction costs for business people; tuition and visa fees of the same value in all the countries; and little worry about inflation in each country.

The most formalized monetary union in the world so far is the Eurozone of the European Union (EU). And since the EAC seems to be modeled after the EU integration model, it is helpful to speculate whether the EAC monetary union can rival the Eurozone. In all honesty, comparing the two is like comparing the biblical David with Goliath.

While the comparison between the EU and EAC is a little far-fetched, nevertheless, there is some basis for comparing the two regional integration models. The theoretical framework informing this discussion is geopolitics, globalization and integration discourse. A lot is being said about Africa being a rising economic star, with major rising global economies such as China, India and Brazil rushing for investments in Africa and threatening the older global economic powers such as Europe and the USA. So the issue for international development experts on Africa is: should Africa embrace globalization or regional integration? The feasible solution seems to be not ‘either or’ but ‘both and.’ The two are in fact not exclusive—the global economy is here to stay, but regional integration seems to be a suitable cushion against the unstoppable aggressive forces of globalization. This is where the EAC integration model becomes crucial for the survival of the emerging economies of the sub-region. A case will be made that in fact the EAC has certain strategic advantages over the EU, and if well utilized, they can help the sub-region tilt the economic balance of power.

INFRASTRUCTURE HUB

As the EAC heads of state were warming up for the summit in Kampala for 30 November 2013, Kenya’s president Uhuru Kenyatta was presiding over the ground-breaking ceremony for the standard-gauge railway on 28 November 2013 in Mombasa. The $13.4 billion five-year project (the Kenyan section of the project) is meant to connect Kenya, Uganda, South-Sudan and Rwanda—four countries of the sub-region. It is estimated that this railway project will reduce transportation costs by about 60 percent. Business people and ordinary citizens in the region have reason to smile. A journey that would ordinarily take about 36 hours will be taking about 10 hours. One can only wonder, why it took so long to see such economic sense. Clearly this project will set Kenya as a gateway for the sub-region.

The traffic menace of heavy trucks from Mombasa plying the region and wrecking havoc on the tiny highways of Kenya, Uganda, Rwanda and Sudan, will be a thing of the past, if this railway project is completed. With the East African community, there has been increased movement of people and goods in the region. Noticeable are the bus-loads of students from Kenya and Tanzania heading to Uganda due to Uganda’s good quality but affordable education. Informal business people across the region are also benefiting from the EAC Common Market. It therefore came as no surprise when South-Sudan applied to join the East African Community along with Somalia. The economic and social benefits of regional integration are great. The region is home to about 200 million people (the actual population of EAC is 135.4 million) if we include the neighboring states such as DRC, Somalia, Ethiopia and South Sudan.

Kenya being the largest economy in the region is taking the integration drive ambitiously and with great momentum. When president Paul Kagame of Rwanda declined the rotational chairpersonship, Uhuru Kenyatta seized the opportunity and became the EAC Chairperson. This new role can be used to negotiate more concessions with the ICC, since he will have extra meetings to attend to. And since Uhuru Kenyatta used the slogan of being a digital candidate during the 2013 presidential elections, he might as well be the best suited leader in the region to take the EAC to the digital level. Only time will tell.

UNTAPPED RESOURCES

Perhaps the greatest advantage that the East African region has over EU is the immense untapped natural resources within the countries of the regional block as well as neighboring states. Recently oil has been discovered in Uganda, and Kenya. Huge natural gas deposits have been discovered in Tanzania. This is in addition to the oil deposits in South Sudan. With these oil deposits, it makes economic sense to construct an oil refinery in Uganda, as the government has persuasively argued. Oil is not the only natural resource in the region—there are lots of other metallic minerals in the region: iron ore, tin, gold, platinum, and silver.

In addition to minerals, the region has also large tracts of arable land that can be used for commercial farming. Middle Eastern countries, Brazil, China and India, are particularly interested in commercial farming within Eastern Africa. Related to agriculture is the available cheap labor.

The other very strategic resource that the East African region has in abundance is energy potential. Solar, wind, thermal energy are all in abundant supply but not yet tapped. Then add hydro electric power that the numerous rivers can generate.

And finally, add tourism potential. The national parks in the region have no rival—not even Kruger Park in Southern Africa can rival a combination of Ngorongoro Crater, Serengeti National Park, Masai Mara, Kidepo National Park, Marchison Falls, Bwindi Impenetrable Forest with its mountain gorillas (rare species), Nairobi National Park, Mgahinga National Park and Akagera Naional Park, to mention a few. Do not forget that the region is also home to two of the deepest lakes in Africa: Lake Tanganyika in Tanzania and Lake Bunyonyi in South Western Uganda. The complex and diverse cultures of the region also bring another less known tourism sector—cultural tourism. The mouth-watering cuisines and exotic dances of the hundreds of ethnic communities, leave the foreign tourists baffled and wanting to stay longer in this cradle of humanity. With the single tourist visa for the region, a tourist visitor is able to traverse the entire region after entering one of the countries.

If the railway project serves as the ‘hard-ware’ of regional integration, the monetary union is the ‘soft-ware’ of regional integration. It is money that fuels the wheels of regional integration, and if there is a common currency, the wheel rolls even faster.

GEOPOLITICAL ADVANTAGE

In terms of geopolitics, the EAC has very strategic benefits that sets it in a class of its own. Two of the major economies of the regional block, Kenya and Tanzania, have an easy access to the Indian Ocean. Uganda, Rwanda, Burundi and South-Sudan (if it is admitted) that are land-locked, will benefit immensely from the two that have access to the coast. With Customs Union, clearing and forwarding is made much faster at one point of entry—Mombasa or Dar es Salaam. If Somalia joins the regional block at a much later stage, the geopolitical advantage will be enhanced all the more. After all, Burundi, Kenya and Uganda are both heavily involved in the stabilization of Somalia under the UN and AU mandate. Implications for security amidst global terrorism are too obvious to state.

The other geopolitical advantage is to do with the troubled Great Lakes Region where armed rebel groups have been threatening state security. With increased integration, rebel groups will have little room for maneuver. This is a very delicate issue given that if the foreign policies of the various countries of the region are not harmonized, they can find themselves on the opposite side of military and security operations, thus causing more conflict in the region. This is more the case with regard to Eastern DRC where numerous rebel groups such as M23 have drawn Eastern African countries of Uganda, Rwanda and Tanzania into the conflict. This in fact means that the secret to the stability of DRC lies in the East African Community. Given DRC’s proximity to EAC, there is no reason why it too can’t join this dynamic and growing regional block.

With regard to South Sudan, the eagerness with which it has shown interest in joining, demonstrates its anticipated benefits. It is Africa’s youngest state to gain independence and needs to be guided in the slow and cumbersome process of nation-building. What better way to begin than being nurtured by a regional block of fairly stable states! It is also a known fact that South Sudan was helped a great deal by Uganda and Kenya during the SPLA armed struggle against the Khartoum government. Joining the EAC for South Sudan, will be a continuation of the age-old political friendship with the countries of the region that were home for most of its freedom fighters. It is therefore not surprising that many Kenyans and Ugandans are doing business and serving as professionals in the newly created state of South Sudan.

The other geopolitical advantage of EAC is the fact of multiple regional blocks operative in the sub-region. Tanzania for instance belongs to SADC, the regional block that also houses DRC. Far from this being a contradictory arrangement, it offers another model of integration and gives an extra advantage to Tanzania, and strategically brings Southern Africa much closer to the Eastern African sub region. South Africa’s economic muscle needs no elaboration. Its financial institutions such as Standard Chartered Bank/Stan Bic, retail chains such as Shoprite, and South African Airlines, are a clear manifestation of its ubiquitous presence in the region. South Africa’s excellent infrastructure, high quality universities and effective legislative framework, can serve as a model worthy of emulation for the East African countries. So while Uganda and Rwanda are looking to the east (Kenya)), Tanzania is looking south and west (South Africa, DRC and Burundi respectively). This kind of sophistication among respective countries of EAC, can help sharpen their strategic thinking.

Finally, the other geopolitical advantage is to do with Ethiopia. Ethiopia is home to the AU and it shares borders with Kenya, South Sudan, and Uganda is just about 60 kms away. While Ethiopia has not expressed any desire to join the EAC, its proximity with Kenya and its massive infrastructure projects with Kenya and South Sudan, brings its much closer to the regional block than was anticipated. Ethiopia clearly looks like a de facto member of EAC. Moreover, tens of thousands of Ethiopians are doing business in the region already. Ethiopian Airlines is the best African Airline plying the region—from Addis to Nairobi; from Addis to Entebbe; from Addis to Kigali and from Addis to Dar es Salaam. The planned railway to link Lamu (Kenya), Moyale (Ethiopia) and Juba (South Sudan) will no doubt integrate Ethiopia in the EAC in a more strategic way than even an official application to join the regional block. The example of Ethiopia, South Africa and DRC, clearly demonstrates how the dynamics of integration are much more complex than meets the eye. One can safely argue that these countries are truly integrated to the EAC by proxy.

DEMOGRAPHIC DIVIDEND

One other strategic advantage of EAC that is least discussed is the demographic dividend, that the rest of Africa is known for. This is to do with the phenomenon of a young and fast growing population. It is well known that more than 30 percent of the population of the region is below 25 years of age. This means that the region is home to a very young population, full of energy and with the appetite of an elephant. Businesses are lured by such a population that is able to consume goods in sectors such as: telecommunications (mobile phones, and computers); educational materials; clothing, food and drinks; health; entertainment and travel. Some of the countries such as Uganda and Rwanda have the most densely populated areas in the world with an average family size of 7 children and a population growth rate of about 3.4 percent per annum. The citizens of this part of Africa seem to take their biblical injunction—‘be fruitful, multiply and fill the earth,’ too literally. And do not ever persuade them to use family planning methods—you fight a loosing battle.

While such a population boom can strain resources of young economies, it also has the advantage of cheap labour. Also great innovation can be found in such a young population. It is no surprise that Rwanda has been acclaimed as a leader in ICT innovation worldwide. With limited land, investment in technology is the way to go. Kenya on the other hand is taking a lead in apps innovation. Famous in this area is M-Pesa innovation in financial architecture, where money is sent and bills are settled using a mobile phone.

Due to this great innovative spirit the region is home to some of the best brands on the continent: MTN, airtel, Shoprite, Samsung, Vodafone, etc. Even though these are not owned by local businesses of the region, they employ people from the region who take advantage of these companies to improve their business skills. East Africa is also embracing the most innovative idea in entrepreneurship—outsourcing. Outsourcing companies such as KenCell are delivering jobs in telecommunications. Wilson Raphael is another outsourcing company in Tanzania offering innovative ideas and jobs. Jobs such as web design and graphics can be easily done by outsourcing. East Africa has an advantage of being a different time zone from Europe, USA and Asia. While these countries are sleeping some one in East Africa could be minting money as a telecommunications customer care provider. Outsourcing is much easier to advertise with social media, an area where youth are more adept.

With deep integration, countries with high population density such as Rwanda and Burundi, can easily have some extra room where people can move to do business or even farming in the less populated countries. This strategy can also reduce conflicts related to land scarcity such as are witnessed in Rwanda. With the EAC common market in place, there will be free movement of labour and goods. This will in turn decongest some of the overpopulated countries of the region. If the rich cultures of the region can mingle feely, one cannot underestimate the genius that will emerge from such an anthropological integration of gene pool. Of course intermarriages are bound to happen across ethnic and racial groups gradually bringing to an end the ethnic essentialism and exclusion that has caused recurrent ethnic conflicts in the region.

OTHER REGIONAL BLOCKS: RIVALS OR COLLABORATORS?

Every time the discourse on regional integration takes place, the issue of multiple blocks comes up. SADC has been mentioned with regard to Tanzania. But in fact all the other countries of EAC belong to the Common Market for Eastern and Southern Africa (COMESA) headed by Uganda’s President Yoweri Museveni. Then there is the less known Intergovernmental Authority on Development (IGAD) that includes some countries of Eastern African and the Horn of Africa. And finally, there is Preferential Trade Area (PTA) that even has a development Bank. President Museveni also is Chairperson of the International Conference on the Great Lakes Region (ICGLR) with headquarters in Burundi. While this is not strictly speaking a regional integration model, it is a regional body promoting peace in the Great Lakes Region. From a conference it can be transformed into a regional block—the Great Lakes Region. And of course, EAC countries are also part of AU.

From these regional blocks it is evident that there is no single formula for regional integration. Rather than being competitors, these blocks provide avenues or more complex collaboration. Even recently, the very EAC was engaged in some soul searching when a new phenomenon known as the ‘Coalition of the willing’ (CoW) emerged. It includes Kenya, Uganda and Rwanda, while Tanzania and Burundi are left out. This issue has caused some unease in the region and some analysts started whispering that we might be headed for a break up the EAC as happened in the 1970s. These fears have been allayed but the suspicion is still there. This development even made the Tanzanian president Kikwete address the Tanzanian parliament to clarify a few things. He emphasized that Tanzania was very much committed to the EAC and its scheduled procedures of integration. He however challenged the CoW as to why they were dealing with issues of the EAC under a tripartite arrangement, leaving him out. The two major issues that caused unease were: the infrastructural development of the railway line from Mombasa to Kigali and Juba; and the fast tracking of the political federation. He made a compelling case, and so far, the other presidents have not responded formally to his claims. He further convincingly argued that even though it is allowed to have bilateral and trilateral arrangements among member states, if an issue at stake is under the EAC protocol, the entire EAC should be part of the discussion and certainly, the EAC Secretariat should be privy to the arrangements. And finally, Kikwete challenged the rational of the coalition of the willing by asking his colleagues as to how they determined who was willing and who was not. This was quite astute of him. He basically argued that they should have invited him in order to see if he was willing to join them or not.

This episode is instructive of the inner dynamics within the EAC system. While the protocols of the EAC are so well defined and quite strong that there should be no fear of the region falling apart, the CoW phenomenon calls for more open and transparent consultation among members. It also raises the issue of whether the EAC is just an affair of the respective heads of state or of the citizens of the region. The common complaint about the EAC has been the problem of little involvement of the common ‘wanainchi’ (as citizens as known in Swahili). If the EAC is to benefit the majority of the citizens, then it must be seen as representing their deeply felt aspirations, and they should be allowed to participate in major decisions. A lesson from the EU might be of help, where at every crucial stage of integration, the population was consulted by way of referendum. From the EU lesson, it is also clear that not all members warmed up to the integration at the same pace. For instance, Britain held onto its pound and avoided the Euro. From the EU model, it is also clear that not all members are of equal economic strength—Germany is not Spain! And yet they agreed to form a common market, aware that all will benefit, each according to its capacity and means. Therefore, to wait to first be equal economically before one can integrate misses the point and logic of integration.

CONCLUSION

So will the EAC monetary union take the sub region to greater heights and even make it rival the Eurozone? Predicting the future is a hazardous game, but nevertheless one worth the effort. Strategic advantages of the EAC have been briefly presented. The great potential of the region is not disputed. If the infrastructure plans go on as scheduled, and the monetary union gets implemented as envisioned, EAC can lift the region out of poverty. If the region can reach up to 10 percent of economic growth on average and do this sustainably for over two decades, then EAC will have rivaled the Eurozone. This is the region to watch and invest in.

But some caveat is in order. The EU is centuries ahead of EAC with regard to some basics such as rule of law, respect for human rights, stable constitutions, literacy, water supply, electricity, tarmac roads and health systems. Will EAC countries get these essentials right as a matter of priority? There is still some political economic asymmetry among the EAC countries: some do not have presidential term limits leaving room for doubt about peaceful transition; some do not have vibrant opposition and free media, making it difficult to keep the government accountable; land policies that are not harmonized; and contradictory foreign policies. It is these issues that will need to be addressed in tandem with regional integration, if the EAC can rival the EU in the glorious decades to come.

*Odomaro Mubangizi (Dr) is Dean of the Philosophy Department, and also teaches philosophy and theology at the Institute of Philosophy and Theology in Addis Ababa.

* THE VIEWS OF THE ABOVE ARTICLE ARE THOSE OF THE AUTHOR/S AND DO NOT NECESSARILY REFLECT THE VIEWS OF THE PAMBAZUKA NEWS EDITORIAL TEAM

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