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Michuzi Blog columnist John Mashaka

The East African bloc of nations is sprinting to launch its unified currency in a year or so. However, there are many underlying problems beneath the union’s monetary integration that could plunge the entire East African region into a crisis, far worse than that of Euro-zone, if careful, long term strategic study and planning are not put into consideration. In short, the common market- free movement of people and goods- between Rwanda, Kenya, Uganda, Burundi and Tanzania can continue without the 2012 scheduled common currency

Monetary and other unions are practices inherited if not imitated from the western nations. Despite the European Economic Community, and now European Union’s fifty-four year old existence, its common currency, the EURO, only came to into existence sixteen years ago.  And out of the twenty seven member countries, only seventeen member states adopted the –EURO- currency. Britain opted out and maintained its Pound, and thus far remained out of the Euro-zone crisis.  



Politically, socially, and economically, the EU is far ahead of us. Despite their relative economic, political and social advancements and superiority, it took them hundreds of years before they could form the European Economic Community in 1957 and subsequently European Union in 1993. On the other hand, The East African Union was hastily formed in 1967, just over five years after our independence, under the umbrella of East African Community, just to collapse ten years later in 1977, due to serious political differences which are still between the member states.  


Monetary integration requires essential stability in the context of political, social and economic. Our young nations at the time of initial East African community lacked cohesion.  Fifty-years down the road, our countries are far more polarized than they were few years after independence. Some of our neighbors don’t see eye to eye due to their deeply entrenched tribalism and ethnicity; they have slaughtered themselves in the past, while remaining potentially explosive and extremely delicate societies. Some of their political parties are more or less of tribal/regional outfits, fronting certain ethnic interests or tribal heroes. 

Reading from the current European Union’s economic melodrama, under the name of “Euro-zone Debt Crisis”, one will wonder whether our leaders are reading from the same script, and could perhaps learn something worthwhile before they enter into the economic dark hole of monetary union. Ireland, Portugal, Greece, Iceland, Spain, and Italy are a few countries currently on hospice care, requiring the debt laden European Union, and its European Central Bank for bail out. The Euro-zone crisis, has proven to be a great burden and a nightmare to the single stronger German economy.



European nations do not have 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 countries have uneven economic recovery plans, with each central bank trying to maintain laxity in its tax system. During formation of the Euro, its designers assumed that, without rules, fiscal mistakes by one member state would impose cost on all. German’s initial worry that unchecked deficits would be a burden on the European Central Bank to monetize public debts, and financially sound nations would be forced to bail out the spendthrift like Italy, a prophecy that came to be its nightmare.


After more than half a century of fiscal and economic study, the Europeans still have no cure to their economic nightmare. The hasty East African’s monetary integration is a disaster in the making because its member countries have no clear fiscal policies to save their current sick economies, leave alone bailing out their counterparts should any fiscal or economic crisis emerge. In short, the union is not prepared to handle the bigger problems of bailing out member nations in case of financial crisis. Kenya for example will not be in position to bail out Tanzania should her southern neighbor run into a financial collapse, neither will Rwanda.


Need for uniform wages, relative to the cost of labor among the member nations, under the same currency, is a big challenge that requires many years of study and experiment before it can be put into place. Loss of national pride and sovereignty are other serious problems that have not been fully addressed and requires a national consensus or referendum. Transferring, giving up, or sharing of monetary and fiscal capabilities, will likely weaken a country’s fiscal competencies in the move for a single currency, in addition to losing sovereignty and national pride.


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. In the interim, we must work within our countries to control endemic corruption, and impunity. Until internal political, economic, social divisions and mismanagement within member states are resolved, until clear fiscal policies are put in place, it will be on the best interest of our respective countries to tread cautiously towards a common currency. Else, it will be just another failed African project.


Mungu Ibariki Tanzania

John Mashaka
mashaka.john@yahoo.com

Michuzi Blog

Tanzanian blog operating since 2005, covering International news and Local News, including Politics, Fashion, Social Scenes, Interviews, Movies, Events, personalities and anything positive happening worldwide. Written in Swahili and English targeting both Swahili and English readers.

Toa Maoni Yako:

Kuna Maoni 7 mpaka sasa

  1. Acha uchoyo huo Mashaka. Mambo ya kila mtu kivyake sio mazuri, ukipata shida itabidi utatue kwa pesa zako!!

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  2. Couldnt agree with you more! Wachumi wetu wapo wapi?

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  3. Thank you Mr.Mashaka,UNAONA MBALI SANA.I wish hao wakuu wanakaa hapo ikulu kunywa soda na vipande vya kuku tu,na kushiba leo.hawajui kesho.Watanzania wezangu wengi ni mabongo lala,kazi kukaa baa na kuhonga.wao ndo maisha.Hawajui kesho na vizazi vyetu,wamejaa,roho mbaya,wizi,wanajiibia hadi wao wenyewe.We have a long way to go.
    Yaani nakubaliana nawewe kabisa.Suala la EAC lisiharakishwe hata kidogo.Ni ajabu,we dont share same political view,at least hata economy,leo hii unaniambia tuwe na currency moja?
    whats good for EAC now is,free market economy and free movements.Hakuna uraia wa nchi mbili wala nini.
    hawa viongozi wanataka kuacha crisis,in the name of LEGACY.

    mimi binafsi nakushukuru kwa mchango wako.Utakuwa umegusa fikra za mtu moja au wengi na kuleta manufaa zaidi kwa ajli ya vizazi vijavyo.

    ubarikiwe.

    nice article as usual.

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  4. Mr. Mashaka,
    Ungekuwa mtu wa busara sana kama ungeandika faida na hasara zake. Sasa wewe unaona mabaya tu, tena kwa kuadapt matatizo ya ulaya? Let us do cost and benefit analysis ndo tujue tukae upande gani.
    BM

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  5. Yohanna, as always, I salute you. This government is sick, and they are creating a very dangerous environment for themselves. I am not surprised that they are running towards a single currency without consulting the public. They may as well dollarize our economy since dollar controlling our economy. You can’t do anything major without a dollar. I have been supporting Kikwete’s government but from now on, I am fed up with this government. My support it dead and I advise them to be very careful with this single East African currency

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  6. Mr. Wall-street. I am seconding your thoughts with the following points.
    1. Fifteen separate countries with widely differing economic performances and different languages have never before attempted to form a monetary union.

    It works in the United States because the labour market is mobile, helped by the common language and portability of pensions etc. across a large geographical area. Language in Europe is a huge barrier to labour force mobility.

    This may lead to pockets of deeply depressed areas in which people cannot find work and areas where the economy flourishes and wages increase. While the cohesion funds attempt to address this, there are still great differences across the EU in economic performance.

    2. If governments were obliged through a stability pact to keep to the Maastricht criteria for perpetuity, no matter what their individual economic circumstances dictate, some countries may find that they are unable to combat recession by loosening their fiscal stance.

    They would be unable to devalue to boost exports, to borrow more to boost job creation or cut taxes when they see fit because of the public deficit criterion.

    In the United States, Texas could not avoid a recession in the wake of the 1986 oil price fall, whereas demand for Sterling changed in the light of the new oil price, adjusting the exchange rate downwards.

    3. All the EU countries have different cycles or are at different stages in their cycles. The UK is growing reasonably well, Germany is having problems. This is the reverse of the position in 1990.

    Since the war the UK economy has tended to have an economic cycle closer to the US than the EU. It has changed because interest rates are set in each country at the appropriate level for it. One central bank cannot set inflation at the appropriate level for each member state.

    4. Loss of national sovereignty is the most often mentioned disadvantage of monetary union. The transfer of money and fiscal competencies from national to community level, would mean economically strong and stable countries would have to co-operate in the field of economic policy with other, weaker, countries, which are more tolerant to higher inflation.

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  7. I am not even sure why this is necessary given the lackluster performance of the Euro as a "seamless" currency. For such a currency to be successful, the monetary policies would have to be synced up and their political barriers would have to be minimal. This is not true for the region. It also does not eliminate the need for forex reserves and though it will eliminate transaction costs within the region, they will still exist to a large extent because these countries actually use the dollar as an intermediary currency. I see no benefit here. performance of the Euro as a "seamless" currency. For such a currency to be successful, the monetary policies would have to be synced up and their political barriers would have to be minimal. This is not true for the region. It also does not eliminate the need for forex reserves and though it will eliminate transaction costs within the region, they will still exist to a large extent because these countries actually use the dollar as an intermediary currency. I see no benefit here. I am therefore seconding mr. mashaka’s thought

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