KIBAKMENDE

The Kenyan Anti-Hero

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.

How Tanzanian Justice Fails to See the Wood for Trees

The East African Development Bank’s search for justice and self-preservation in the courtrooms of Tanzania has been as trivialised as it has been convoluted. Throughout the litigation, the courts have systematically focused on technicalities and blocked any attempt to interrogate the merits of the $61 million arbitral award that threatens the viability of the bank.

Between March 1990 and June 1992, the Bank provided a total of $2.2 million in loans to Blueline Enterprises Ltd, a Tanzanian transporter, for the purchase of to 10 heavy-duty trucks and other equipment. However, in November 1995, the Bank placed the company under receivership for non-payment. Following a successful arbitration process the Bank’s initial victory was overturned by the courts, which ordered new arbitration proceedings. The award, which some have termed “obscene,” stemmed from this latter process.

The EADB’s numerous attempts to have its day in court have been bogged down in legal minutiae. Not once has it had the opportunity to tell its side of the story. And as it stares bankruptcy in the face, what has been forgotten is that it was the Bank that actually lent money to Blueline, which with interest, would now amount to over $40 million. And since the Bank belongs to the governments of the EAC, it is their citizens who stand to lose this sum.

Below is a timeline of the case:

March 7, 1990: East African Development Bank advances a loan of approximately $1.86 million to Blueline Enterprises Ltd of Tanzania to purchase 10 heavy duty trucks and other equipment.

June 16, 1992: The EADB gives Blueline a supplemental loan of $340,000.

November 24, 1995: The Bank appoints Coopers and Lybrand (now PricewaterhouseCoopers) as Receiver and Manager of Blueline
.

December 4, 1995: Blueline procures an injunction from the High Court restraining the Bank from permitting its Receiver and Manager to “take over and run” Blueline’s business.

February 14, 2001: The Bank and Blueline file a Compromise Order appointing Hon. Francis L. Nyalali (the former Chief Justice of Tanzania) Sole Arbitrator and A. T. H. Mwakyusa as his substitute.

September 30, 2002: Hon. Mr Nyalali finds in favour of Bank and dismisses Blueline’s claim on the basis that it lacked legal merit. Hon. Nyalali dies shortly thereafter and Blueline files a petition challenging the award.

July 30, 2003: Mr Justice Luanda sets aside Hon. Mr Nyalali’s award and orders the Arbitration proceedings to commence afresh before Mr Mwakyusa.

The bank appeals on the grounds that Mr Mwakyusa could only have been appointed if Mr Nyalali had not acted as arbitrator.

November 21, 2003: The Court of Appeal of Tanzania strikes out the appeal because the Bank has failed to obtain Leave to Appeal.

To rectify the error, the Bank files an Application in the High Court seeking an extension of time to file a new Notice of Appeal and an extension of time to seek Leave to Appeal to the Court of Appeal .

July 9, 2004: Mr Justice Mihayo of the High Court refuses to grant the extensions of time.

Following commencement of arbitration before Mr Mwakyusa, the Bank applies afresh to the High Court for the removal of Mr Mwakyusa as the Sole Arbitrator and for the Arbitration proceedings to be stayed pending determination of its petition.

May 11, 2004: The Bank’s Application is dismissed by the Hon. Justice Massati because it has not annexed the Loan Agreement containing the Arbitration clause to the Application.

The Bank files a Notice of its intention to appeal to the Court of Appeal as well as an Application for Leave to Appeal. Simultaneously the Bank files an application to prevent the Arbitration proceedings from continuing pending the determination of its Appeal. The Court of Appeal strikes out the latter application on the ground that the order of the High Court was not capable of execution, and therefore a stay order relating to it could not be issued.

The Bank subsequently appealed to the Arbitrator to remove himself, but he declined to do so.
In light of the dismissal of the application for a stay order, the Bank abandons its intended Appeal against M. Justice Massati’s decision and as a result, Mr Mwakyusa, commences the Arbitration proceedings.

August 31, 2005: Mr Mwakyusa delivers his award awarding Blueline $61,386,853 in relation to Blueline’s claims against the Bank. No award is made in respect of the Bank’s claim for the outstanding loan.

The Bank files a Petition and Application in the High Court seeking to set aside the award; a declaration that Arbitration proceedings have failed and consequently the dispute should be determined by a Court of law; and a stay of execution of the arbitral award pending the final determination of the Bank’s petition.

Mr Justice Shangwa sustains Blueline’s objections that the Bank has omitted to annex a certified copy of the arbitral award even though the original was, at that time, before the High Court, and particularly, before the judge handling the matter, having been sent there directly by the arbitrator.

The Bank files a further Application to the High Court for extension of time in order to file another Petition to set aside the Arbitral award. However on the day fixed for the hearing of the said Application, the Bank withdraws the application upon advice of Counsel that the time limit has not lapsed after all. This advice is based on a previous decision made by the Court of Appeal that implies that the petition, being a “suit,” could be filed up to six years from the date of the award.

Immediately thereafter, the bank files a new petition in the High Court.

Blueline raise a preliminary objection that the petition is time-barred and should be struck out, relying on a 2002 Court of Appeal decision that a petition to set aside an award is an “application” (and not a “suit”) and was therefore still subject to the 60 days limitation.

June 22, 2007: Justice Mandia delivers his ruling noting that there are two conflicting decisions of the Court of Appeal on the matter. He, however, decides to rely upon the earlier decision, that a petition is an “application” and declares it time-barred.

July 5, 2007: EADB files a Notice of Appeal against the ruling of the Court together with an application for Leave to Appeal.

April 11, 2008: The Bank’s application for leave to appeal Justice Mandia’s decision is struck out with costs.

December 17, 2007: EADB files an application seeking an order from the court for extending the limitation period on the grounds that there is reasonable cause for the court to exercise its discretion.

March 26, 2009: Justice Sheikh of the High Court dismisses the Bank’s application because EADB had previously filed and withdrawn a similar application for the same order (for extension of time) without seeking liberty to reinstitute it.

May 12, 2009:Justice Shangwa dismisses the Bank’s application to vacate the garnishee order by way of which Blueline sought execution of the arbitral award declaring that the Bank’s immunity from attachment of its assets did not extend to its cash.

September 22, 2009: Leave is granted to appeal against Justice Shangwa’s ruling. Subsequently, Blueline consents to the grant of leave by the High Court for the appeal against the decision of Justice Sheikh.

March 8, 2010: A three-judge panel dismisses the Bank’s appeal on the grounds that since Justice Mandia had dismissed the petition previously brought by the Bank, it was not open to the Bank to go back before the same Court with an application for enlargement of time.

March 11, 2010: The hearing on the appeal against the decision by Justice Shangwa relating to the Bank’s immunity is adjourned after one of the judges recuses himself.