Tuesday, December 04, 2012

Uganda not ready for East African common currency

As the December 2012 deadline for the ratification of the Monetary Union nears, the idea is still far-fetched to the ordinary Ugandan.
If the Monetary Union—the fourth-stage of the East African integration—is signed, it will mean that the five-member states will be using a single currency, with a fixed mutual exchange rate monitored and controlled by one central bank with closely coordinated monetary policies.
A random mini-survey around Kampala streets shows that many people don’t know what the benefits or what having a single currency will mean for their businesses, yet those who have some little knowledge about it detest the idea.

Talking to Mr Sowedi Ssali, a dealer in electronics, among which are mobile phones he imports from Kenya, he seems uninformed about the EAC member countries going into a single currency.
“I don’t know much about the single currency and if it’s introduced, I believe it will make life difficult for us to do business,” Mr Ssali says.
Kampala City Traders Association (Kacita)’s Spokesperson Issa Sekitto, in an interview with Prosper said: “We are still struggling with the Cash Bondage introduced by the Kenya at Mombasa and other Non-tariff barriers (NTBs) which have come as a result of the Customs Union (CU) and Common Market (CM) and then think of the Monetary Union.”
Supporting his argument is Mr Gerald Ssendaula, the chairman of the East African Business Council, said: “We are not ready for the monetary Union. Let us first consolidate what we have agreed upon regarding the effectiveness of the Customs Union and the Common market,” Mr Ssendawula says.
Playing field not levelled
It’s been 12 years since the member states signed the EAC Protocol which was to see the ratification of the CU and CM. Since the ratification of the first two stages, the playing field has not been balanced. Some countries are benefiting more at the expense of others.
Mr Jerome Busuulwa, a Ugandan private trade analyst based in Dar es Salaam, says the business community should be educated on how this currency will work.
“Although a single currency is desirable; we have very different anti-inflation and anti- corruption controls,” Mr Busuulwa said.

Inflation for instance in all the region’s economies has been on a downward trend with Uganda’s October rate standing at 4.5 per cent, Kenya inflation (4.4 per cent), Tanzania (12.9 per cent), Rwanda (5.36 per cent) and Burundi (15.8 per cent. The different basis for calculating these figures imply that they may not be comparable.

As a result, experts say institutions such as the envisaged East African Central Bank would find it difficult to apply monetary policies across the national borders to police the single currency.
Mr Busuulwa further advises that in one country, the state can ‘spend’ 30 per cent of the budget in a month on political campaigns and that certainly affects the currency.
“I doubt if the EA countries have the will to institute the institutional and legislative measures necessary before EA currency becomes a reality,” he says.
He is, however, optimistic, that the EA can manage a unifying currency to run alongside the national currencies at first.

Acting Deputy Executive Director Uganda Exports Promotions Board, Mr William Babigumira has positive sentiments about the single currency in EAC, saying: “It [single currency] is likely to eliminate currency risk and reduce transaction costs within the common currency area.” He adds that consumers will benefit from increased competition because prices will be easier to compare and thus Intra EAC trade is likely to boom with a single currency.
However, he advises member states to weigh the benefits of a common currency against the loss of flexibility with monetary policy, especially if a common currency comes much earlier; before “deeper” integration is a reality.

Eurozone lessons Drawing a lesson from the Eurozone, Mr Bagigumira says: “From observing the Euro-zone crisis, we learn the biggest lesson that full scale integration is better than half-measured attempts.”

The reluctance of the European Central Bank to intervene even when imminent economic collapse (of Greece and others) was a reality, because it was not the “lender-of-last-resort” holds some valuable lessons for integrationists.

This proposes the creation a common central bank ready to shield countries in the common currency area against asymmetric economic and financial shocks.
“There is need for further dissemination of the benefits of integration. National parliaments have to create the necessary institutions that can allow pro-people policies to be simple.

Source: Daily Monitor

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