East African Community heads of state will at the end of this week sign a monetary union agreement, paving way for the creation of a single currency.
President Uhuru Kenyatta on Tuesday said that the creation of the East African Community Monetary Union is expected to strengthen regional competition, address costs of financial transactions in the region and reduce risks.
“The people of East Africa are interacting at such as rising rate and exchanging information, goods and services in such growing volumes, that our borders have become mere formalities,” said President Kenyatta, while addressing the third meeting of the second session of the third East African Legislative Assembly in Nairobi.
President Kenyatta said that a single monetary union would also reduce the costs of transacting business by eliminating use of different currencies across the five countries.
The signing of the agreement also comes at a time when trade volumes between the Kenya, Tanzania, Uganda, Rwanda and Burundi have been on an upward trend.
According to the Society of International Development’s latest state of East Africa report, the value of intra-regional trade was valued at almost $5.0 billion in 2011, an increase of under $1.0 billion from $4.1 billion in 2010.
Exports within the region accounted for 21 per cent of total exports in 2011 while the share of imports from the region has remained at 7 per cent of East Africa’s total imports between 2009 and 2011.
Foreign direct investment inflows stood at $3.9 billion in 2012, a $1.8 billion increase from $2.6 billion in 2011 with 90 per cent or a combined total inflow of $3.4 billion going to Uganda and Tanzania.
Rwanda FDI increase by $54 million in while Kenya’s shrank by $76 million and the the extractives sector overshadowed others in investments investments into East Africa.
International companies such as Tullow, Ophir Energy, Coca Cola, General Electric, Airtel, Vodaphone, Diageo, SABMiller and IBM are doing business across the region and indigenous banks such as CRDB, KCB Group, NIC, Equity and Diamond Trust have become regional lenders.
The signing of the agreement also comes at a time when Tanzania has complained of being isolated by Kenya, Uganda and Rwanda on infrastructure projects.
Tanzania has however been accused of being reluctant on the implementation of key policies that are expected to see the free movement of people and goods and services in the region.
The agreement contains benchmarks such as gross domestic product ratios, debt ceilings, inflation rates and foreign reserve floors which each of the countries must meet and maintain before the single currency is launched.
The regional leaders are expected to sign the East African Community Monetary Union Protocol during the Heads of State Summit, which is the first step to adopting a single currency.
“In many ways, the Monetary Union is the logical culmination of integration efforts,” said President Kenyatta.
The signing of the protocol would make way for the adoption of a single currency within a 10-year period.
The signing of the agreement is also coinciding with the ground breaking of a standard gauge railway that will link Mombasa to Kampala and Kigali.