Tuesday, November 15, 2011



Hon: Samwel Sitta, Minister,
Ministry of East African Cooperation
NSSF Water Front Building 5th Floor
P.O.BOX 9280 Dar-es-Salaam,

Dear Sir,


The East African bloc of nations is sprinting to launch its unified currency in a year or so. However, there are many underlying problems beneath the union’s monetary integration that could plunge the entire East African region into a crisis far worse than that of the Euro-zone, if careful, long term strategic study and planning are not put into consideration. In short, the common market- free movement of people and goods- between Rwanda, Kenya, Uganda, Burundi and Tanzania can continue without the 2012 scheduled common currency.

Monetary and other unions are practices inherited if not imitated from the western nations. Despite the European Economic Community, and now European Union’s fifty-four year old existence, its common currency, the EURO, only came to into existence sixteen years ago. And out of the twenty seven member countries, only seventeen member states adopted the –EURO- currency. Britain opted out and maintained its Pound, and thus far remained out of the Euro-zone crisis.

Politically, socially, and economically, the EU is far ahead of us. Despite their relative economic, political and social advancements, it took them hundreds of years before they could form the European Economic Community in 1957 and subsequently European Union in 1993. On the other hand, The East African Union was hastily formed in 1967, just over five years after our independence, under the umbrella of East African Community, just to collapse ten years later in 1977, due to serious political differences which still exist between the member states.

Monetary integration requires social, political and economic stability. Our young nations at the time of initial East African community lacked cohesion. Fifty-years down the road, our countries are far more polarized than they were few years after independence. Some of our neighbors don’t see eye to eye due to their deeply entrenched tribalism and ethnicity; they have slaughtered themselves in the past, while remaining potentially explosive and extremely delicate societies. Some of their political parties are more or less of tribal/regional outfits, fronting certain ethnic interests or tribal heroes.

Honorable Sita, reading from the current European Union’s economic melodrama, the “Euro-zone Debt Crisis”, it is my hope that, we are reading from the same script, and will learn something worthwhile before we enter into an economic dark hole of monetary union. Italy, Greece, Portugal, Iceland, and Spain are a few countries currently on hospice care, requiring the debt laden European Union, and its European Central Bank for bail out. The Euro-zone crisis has proven to be a great threat to the world economy with Italian bonds unsustainably bearing 7% yields. A rate likely to trigger a default for the European third largest economy

The economic mess trending in Europe is likely to bring about a new wave of social and economic revolution, which we have started to see; sweeping and intrusive austerity measures MUST be implemented to survive the economic catastrophe. Chinese bailout on the other hand is not possible, simply because, China is also a packed bag of explosives with a timer of its own; its housing growth is likely to detonate yet another-deadly economic ordnance crippling the world economy. Therefore, default is the safer option for some of these debt laden European nations, because neither the Americans nor the Chinese can bail them out

Honorable Sita, EU does not have uniform fiscal rules; everybody is playing his own game and style. Their bond-market enforcers have not always been attentive to enforce the needed rigid fiscal codes of conduct; they have varying risk of sovereign default across the euro zone. The member countries have uneven economic recovery plans, with each central bank trying to maintain laxity in its tax system. During formation of the Euro, its designers assumed that, without rules, fiscal mistakes by one member state would impose cost on all. German’s initial worry that unchecked deficits would be a burden on the European Central Bank to monetize public debts, and financially sound nations would be forced to bail out the spendthrift like Italy, a prophecy that came to be its nightmare.

After more than half a century of EU’s fiscal and economic studies, the Europeans still have no cure to their economic nightmare. The hasty East African’s monetary integration is a disaster in the making because its member countries have no clear fiscal policies to save their current sick economies, leave alone bailing out their counterparts should any fiscal or economic crisis emerge. In short, the union is not prepared to handle the bigger problems of bailing out member nations in case of financial crisis. Kenya for example will not be in position to bail out Tanzania should her southern neighbor run into a financial collapse, neither will Rwanda.

Need for uniform wages, relative to the cost of labor among the member nations, under the same currency, is a big challenge that requires many years of study and experiment before it can be put into place. Loss of national pride and sovereignty are other serious problems that have not been fully addressed, and may national consensus or referendum. Transferring, giving up, or sharing of monetary and fiscal capabilities, will likely weaken each member state’s fiscal competencies in the move for a single currency

The list of potential problems related to the proposed single currency is long. The EA regional economic integration should however, CONTINUE ONLY, with free movement of goods and people. Otherwise we must work within our respective countries to control endemic corruption, impunity and other social problems before we can adopt a single currency. Until internal political, economic, social divisions and mismanagement within member states are resolved, and clear fiscal policies are put in place, it will be on the best interest of our respective countries to tread cautiously towards a common currency. Else, a rush to adopt the single currency will be just another failed African project.

Mungu Ibariki Tanzania.

Yours Faithfully,

John Mashaka

Cc: Hon: Mustapha Mkullo (Finance and Economics)
Hon: Ben Ndulu (Governor Bank of Tanzania)

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