Monetary union dream long shot for East African partners

But this trade is growing. “As import and export activities within the EAC increase and competition in the banking sectors intensifies, the depth and liquidity of forward markets would increase and this form of financial barrier would be alleviated,” said the IMF.

But even with these reservations about the preparedness of the region for monetary integration, other researchers say that there is a considerable degree of trade, considering that some of it go unrecorded, that should drive the countries in the direction of monetary integration.

An academic analysis titled Eastern and Southern Africa Monetary Integration: A Structural Vector Autoregression Analysis by researchers from Georgia State University, US, states:

“Estimates of unrecorded trade in the sub-region (EAC) are also high, in some cases over 50 per cent of recorded trade. The stronger trade links may contribute to greater similarity of economic fluctuations and to potentially greater benefits of a monetary union among these groups of countries.”

The study further suggest that “a single currency linked to the euro may lead to substantial gains” for countries in the southern and east African.

It proposes “a tripolar route to monetary integration” where the first is a monetary union to encompass the southern cone expanding northwards to include Botswana, Mozambique, and Zambia.

The second is an East African monetary union with the nucleus as the proposed EAC monetary union with this further expanding to include Ethiopia, Sudan and Egypt. EAC is seen as the right nucleus since it is showing the necessary political will and has taken concrete steps towards a monetary union.

With respect to Rwanda and Burundi, the IMF report says: “The trading volumes of Rwanda and Burundi are much smaller than those of the other EAC members. Since (they) are also the only two countries in the EAC without forward foreign exchange markets, it is possible that the lack of forward foreign exchange contracts in these two countries is due in part to a lack of demand for such products resulting from the low international trade activities.”