E.Africa common currency plans a double-edged sword - CNBC Africa

E.Africa common currency plans a double-edged sword

East Africa

by admin 0

Close up of the Rwanda franc. Rwanda is an East African nation. PHOTO: Getty Images

The common currency  also plans to create a monetary union aimed at lowering transaction costs in the region by eliminating losses incurred in exchange rate.

“I think it actually moved forward on the front of the monetary union protocol. The effort towards a common market, and towards a reduction and elimination of tariff barriers, are really precursors to the monetary union,” United States’ Columbia University senior fellow Johnathan Berman told CNBC Africa.

“I think the aspiration will be that the move towards monetary union will accelerate those processes which have stalled over the last couple of years.”

A common currency is also expected to be a trade benefit for the five countries, and Berman explained that the most important of benefits would be in terms of intra-regional trade opportunities.

[video]

“East Africa already leads the continent in that regard, but there’s clearly more opportunity to do more. Looking internationally, it’s clear that investors and corporations worldwide are waiting to see which parts of Africa integrate the fastest,” Berman explained.

“Without that, what you’re looking at are very fragmented markets that most companies would just skip over entirely. With that integration, and a market of 140 million or more, a lot of companies will sit up and take notice.”

The discussions of a monetary union in East Africa have occurred since 2009, but the slowdown in the process has been attributed to the trade-offs countries will have to make to reach the common currency goal.

Berman added that there will however be certain regions and people who might win or lose from the common currency plans.

“It’s going to have to be a process in which at least each of the countries see themselves as having some winners within it. I think that Kenya, and particularly Nairobi, stand out as a likely winner. Nairobi as an emerging hub not only of East Africa but really of all of at least Anglophone Africa,” said Berman.

“The losers you might be concerned about are not particularly countries within the region but rather those who are dislocated by the change in trade at the base of the pyramid. [These could be] poor or working class people whose opportunities are changing and shifting from country to country. For them they’ll need to be a powerful safety net. More powerful than you’ve seen in other regional integrations.”

Comments