East African region moving towards financial integration
In December, the East African Legislative Assembly (EALA) passed a bill establishing the East African Financial Services Commission (EAFSC), one of the key steps on the road to achieving regional monetary union.
The EAFSC will work to harmonise financial services regulation, including in non-banking financial industries such as insurance, pensions, capital markets and microfinance, while promoting regional integration in the sector.
EALA speaker Martin Ngoga said: “This is one of the legacy bills this House has passed. It’s a bill that touches directly on a pillar of our integration. Therefore, we hope that the remaining step to assent by the Heads of State will not be delayed.”
However, the member states of the East African Community (EAC) have yet to decide where to locate the planned new central bank, to be called the East African Monetary Institute (EAMI).
A report into the best location suggested somewhere in Tanzania but the conclusions appear to have been rejected by Kenya and Uganda. It is intended that the EAMI will take responsibility for overseeing East Africa’s banking sector before also assuming the role of regional central bank.
At present, most of the EAC institutions, such as the Legislative Assembly, Court of Justice and Competition Authority, are housed in Arusha in northern Tanzania until permanent homes for them are decided.
Most member states would like to see a fair agreement on locating them as a whole, rather than ad hoc decisions on individual institutions being made.
Slow progress on monetary union
Progress on regional financial and economic integration, as well as the harmonisation of banking regulations, has been slow since the EAC heads of state agreed to achieve monetary union by 2024, including the introduction of a single currency, when signing the relevant protocol in November 2013.
The introduction of a single currency would have profound implications for businesses and banks across the region by reducing transaction costs and cutting banks’ currency trading revenue.
There are three main elements to EAC economic integration: the creation of a common market, customs union and monetary union. In addition to harmonising monetary and exchange rate policies, the process also includes harmonising public financial management legislation, fiscal transparency and international tax treaties.
In December, an EAC report into the timetable for the process recommended pushing the deadline back from 2024 to 2031 because all member states were behind schedule, including on implementing the required protocols and achieving the macroeconomic convergence criteria.
Source: African Business