17 September 2012

East Africa: Monetary Union Should Not Be Forced - Economic Advisor

Photo: Monicah Mwangi/The Star
Kenyan shilling: The East Africa member states have plans to move towards a single currency.

Entebbe — A senior Economic advisor to the Rwandan President Paul Kagame has urged East Africa states not to force the EAC Monetary Union integration because in his view, the project might not be sustainable.

Prof. Nshuti Manasseh, also a former finance minister, who was in Kampala to deliver a paper on the implications of the Euro-Zone Crisis on the East African Community warned that the EAC integration process has been highly politicized without engaging the common people who the integration is aiming at.

"We have the Common Market and Customs Union already struggling. There is no free movement of labour, persons and commodity. How can you rush/force the monetary union with countries at different levels of inflation?

"Tanzania invested a lot of money in printing her new currency what will happen to their new currency," wondered Manasseh during the 17th Annual Seminar for the Institute of Certified Public Accountants of Uganda held at the Imperial Resort Beach Hotel in Entebbe Uganda.

Manasseh stressed that the EA monetary Union campaigners should first educate the people to avoid the Euro crisis that hit Europe and the disintegration of the EAC that was realized in the late 1970s.

With volatilities within the EAC region currencies ranging between 9% and 35%, Manasseh noted that this is a very wide gap for any economy to accept. "The volatility has ranged between 15% in the last five years. There are signs that this may be the case in the medium term," he stressed.

The EAC Monetary Union, which was projected to commerce at the end of this year, seem to be hitting a dead end as Manasseh suggested that it can wait for at least five more years.

"Integration should not be politically driven," he emphasized.

He projected the Monetary Union integration could lead to a reduction in export demand of primary products leading to imbalance in terms of trade for EU dependent exporting countries. He noted raising capital from the western countries may become difficult and a reduction in capital flows by way of aid and FDI will come down.

Manasseh however noted that EA monetary union will lead to increased FDI returns from the region and demand for low risk assets.

"The high unemployment in the EU will shift to developing countries, relocation of failing industries to low labour costs/raw material rich countries and appreciation of local currencies," he said.

Ms. Caroline Kigen, the Chief Executive Officer of the Institute of Certified Public Accountants of Kenya said countries have not responded to the Accountants Mutual Recognition Agreement that was signed last year, with only 24 Kenyans and 10 Ugandans signing MRAs to work in corresponding countries.

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