Monday, March 22, 2010

The United States of East Africa

Like most other currency unions, East African Monetary Union is a political enterprise. That in itself is not a bad thing. London-based economist, Dr Gerard Lyons, observes that politics was the driving force behind European monetary integration —which, despite the problems with Greece, has been fairly successful.

According to Dr Lyons, historically there have been four types of monetary unions. One is where political union has ensured the monetary union's success. Examples include German Unification at the end of the last century; the longer lasting Italian Monetary Union that followed political unification in 1861; and the US Federal Reserve, established in 1913 as a decentralised system.

A second category comprises monetary unions of small countries that survive without political union, provided there has been economic convergence. Two examples are the 1923 Union between Belgium and Luxembourg and the CFA Franc zone in West Africa, which has survived since 1948.

In a third category, the survival of the monetary union is completely dependent on that of the political union. The original East African shilling is a good example of this. Others include the Soviet system, and the 19th century German Monetary Union, which collapsed with World War 1.

A final category is a temporary monetary union that survives for a long time without political union but eventually collapses. The Latin and Scandinavian Monetary Unions from the last century are examples.

So where does East Africa’s Monetary Union project fall? According to Barrack Ndegwa, Director of Economic Affairs at Kenya’s Ministry of East African Community, the EAC is based on an intergovernmental model of regional integration. The process of integration is led and directed by the partner states’ governments, especially their Heads of State through the Summit, the EAC’s highest decision-making organ. There is no supranational body, such as the EU’s Commission, to which some sovereignty is delegated.

The net effect is that political will matters most and personal or political disagreements between leaders threaten both the EAC and the Monetary Union -the same condition described in Dr Lyons’s third category. We have not taken lessons from the failure of the first monetary union. What should we be doing differently?

Well, the book Economics of Monetary Union by Paul de Grauwe recognises that a monetary union must be embedded within a political union to work well. However, in describing what such a political merger should look like, the book emphasises the need for “a certain degree of budgetary union, giving some discretionary power to spend and to tax” to a central executive body, subject to full democratic accountability.

According to Augustine Lotodo, a member of the East African Legislative assembly, proposals to turn the Secretariat into an EU-type Commission, as well as to make the East African Legislative Assembly into a properly representative and elective body along the lines of the European Parliament, are already being discussed. However that does not go far enough.

To fulfill de Grauwe's condition, the Secretariat will need to be endowed with budget-making and tax-levying powers, the EA parliament’s ambit and power expande and a mechanism for the implementation and enforcement of decisions devised.

Currently, Tanzania’s 42 million citizens are represented by 9 MPs in the East African parliament, the same as Rwanda’s 10 million. Burundi, with just 3 per cent of the region’s GDP, makes the same EAC contribution as Kenya, which accounts for 40 per cent. Lotodo says that equal representation in the EALA and contribution to the Secretariat’s budget will have to be replaced by representation and contributions reflecting members’ population and economy. This is bound to create tensions as the bigger countries seek to assert themselves. A mechanism would thus have to be found to cater for the interests of the smaller nations.

The East African Court of Justice will also need to have its jurisdiction similarly extended and partner states stripped of the power to constrict it as they did in 2006 when, after the court granted an interim injunction barring the swearing-in of the Kenyan nominees, the Summit decreed urgent amendments, passed in record time, to the EAC Treaty to clip the courts wings. That must never be allowed to happen again.

More interested in protecting their positions and woolly notions of “sovereignty,” politicians will probably be unwilling to cede power to the Secretariat. However, de Grauwe offers them some comfort. Though the book highlights the need for common institutions to regulate local social policies that may have regional macro-economic consequences, there is no requirement that decision-making in these areas be fully centralised. Even the transfer of budgetary power, for example, “does not have to be spectacular… It would certainly not be wise to aim at a central budget that comes near to the size of typical national budgets.” Nevertheless, it will require an EAC budget that increases significantly from its 2009 level of about $40.1 million or 0.05 per cent of the region’s GDP.

De Grauwe’s most relevant finding for the EAC is the requirement for “a strong national sense of common purpose and an intense feeling of belonging to the same nation.” Analysing the success of German Unification in the 1990s, he declares this to be “the deep variable that made the monetary and political union possible.” Its presence, he asserts, made it “inconceivable” that Germany start with a monetary union without a unified political system. Its weakness among the nations of Europe, he continues, “makes the progress towards political union difficult... [and] explains why Europe started with monetary union.” The same is true of East Africa.

Kenya is a particularly egregious example. Of all the EAC partner states, it is the only one where the ratification of international agreements is done by the Cabinet. This means that neither the people nor their representatives have ever had a voice on the subject of integration. Parliament never got to vote on the EAC Treaty nor on any of the protocols that followed.

Since EAC legislation takes precedence over national laws, it in effect means that Kenyans now find themselves subject to regulations and authorities that are not accountable to either them or their representatives. This may not yet be considered controversial (national consultations in 2007 and 2008 found that despite low levels of awareness, large majorities in all partner states, including Kenya approved of political federation), but it does little to foster a feeling of ownership of the Community and the processes that generate it.

This is not a uniquely Kenyan issue. In fact, a study last year found that one-third of East Africans had only a weak or no sense at all of being “East African.” In 2004, when the Summit instituted the Wako committee on Fasttracking Political Integration, it was the “slow pace of integration” that caused the leadership to remember the people — a tacit admission that popular participation was lacking.

Attitudes, though, are slowly changing. Last year, The EastAfrican reported that the partner states are to establish integration centres at border points to sensitise the citizenry on the benefits of regional assimilation and that Kenya's EAC Ministry will use mobile phones to educate up to 17 million people on the Common Market Protocol. It is also planning to hire a public relations firm as part of what Naim Bilal, Deputy Director of Public Communications, calls a “broad-based and comprehensive strategy” to communicate the benefits of integration to the people.

Welcome as they are, such measures are only of limited benefit. To be sustainable in the long term, the EAC must evolve into a truly independent and powerful union of peoples -a United States of East Africa- rather than a loose association of regional governments. Till that happens, the Monetary Union and the Community it is meant to serve will remain as fragile as the political will that created them.

1 comment:

Alexander said...

Okay. For monetary union, I would probably resort to Wambui Mwangi's counsel. That is about that ONLY thing in the world that this blogisterical Kenyan intellectual has any knowledge about.
De Grauwe is pretty much wrong about the effects of the Euro introduction to Germany, so you better don't rely on him there.
And it is interesting that your whole piece entirely negates the African Union - why?