East African Community







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 When these three territories were British colonies (strictly Tanganyika was a League of Nations Mandated Territory and then a UN Trust Territory) each had a British governor but for several purposes they were treated as a unit. The British intended them to become a Federation. The highest colonial level was the High Commission, a governors' conference for common action and to supervise the common services.

At independence in 1962 there was created an East African Common Services Organisation which was responsible for Customs and Income Tax, the Post Office, the Railways, East African Airlines, the University, and other services including Tsetse fly control and research. Most important was the East African Currency Board the monetary agency which issued the common currency, the East African Shilling (also used in Aden, British Somaliland and some other territories). During colonial days the Monetary Agency issued shillings according to the number of British pounds it held (£1.00=20/) - thus it was not strictly a Central Bank, as it could not create currency through credit. The East African Shilling was in fact merely a manifestation of the Imperial British Pound, the currency of the British Empire. It was freely convertible into pounds (but not to other currencies). The pound was controlled by the Bank of England.

After independence the three governments failed to agree on setting up a Federation and gradually went their own way, splitting all the common services. The Common Currency was probably the most serious loss as two of the successor currencies rapidly inflated, and eventually the Kenyan currency too. The Currency broke up when Tanzania adopted "socialism" in 1966 and nationalized all its banks. Customs posts were set up on roads which previously had experienced free trade, making the ordinary traders into smugglers. As late as 1971 the author used a currency note of Uganda in Tanzania when travelling on the road from Zambia, but after that period the currencies were entirely separate.

In 1968 a treaty was signed to create a Community on the model of the European Community, which it was hoped would attract more members, such as Zambia and Ethiopia. However, in Uganda the government was overthrown by Idi Amin in 1971 and the heads of state ceased to meet, as the president of Tanzania, Julius Nyerere, refused to meet Idi Amin. The joint Corporations were then broken up, creating three weak economies where there had previously been a relatively strong regional economy. The airline and railways suffered by losing their common maintenance and planning. Kenya railways remained strong while the other two deteriorated. For the economist it is an interesting case study of the dangers of fragmenting economies into units which are too small, and especially of the dangers of small unconvertible currencies. The community effectively ended in 1977.

There was a period when Kenya had some hostility to Uganda, though Uganda was cooperating better with Tanzania - but these are the two weakest economies. It is possible that in the future the three may come closer together again after experiencing 20 years of the disadvantages of being separate. The French former colonies show the advantage of a common currency not under the control of any single set of politicians: the CFA Franc is used in many west African countries.

In November 1991 there were signs of renewed cooperation when the three presidents held talks together and in February 1992 they agreed to resume the operation of the Community.

Agreement to restore the Community was signed in 1999.

A new East African Assembly was due to be inaugurated at the end of November 2001. Nine members from each state will be appointed by the member governments: Kenya, Uganda and Tanzania. Rwanda is due to join 'soon'. Burundi has applied for membership. A customs Union of Kenya, Uganda and Tanzania was inaugurated 1 January 2005.

A new customs union is due to be set up in 2010, including the original three plus Rwanda and Burundi. A new common currency is also due - but the proposed date of introduction keeps receding into the future - 2015 currently proposed (2011).

Doubt about a common currency.

The main advantage of a common currency would be that no single politician could cause inflation by ordering an unjustified expansion of money supply (as in Kenya 1992). Also, trading between the members would be easier than at present, when prices for inter-territorial trade may have to be nominated in dollars. The hope is that a single currency used by five states will be stronger than the national currencies of each.

Would an East African currency experience the same problems as the euro? In Europe poorer countries, such as Greece, found the currency a problem as they borrowed too much and didn't produce enough to be able to repay the loans. But the East African members are all at about the same economic level. Greece was in the same union as Germany, a very productive economy that didn't need to borrow. None of the members of the EAC are in this position, though Kenya's economy may be considered more developed than the others'. Does that amount to the same dominance as Germany's within the eurozone? Would Kenya dominate the others, economically?

However, a change may come when Uganda is an oil producer and may perhaps become richer from the revenues of the oil fields in the Lake Albert area. Oil tends to produce inflation and criminality (as seen in Nigeria). Oil is easy money that only lasts while the fields are being pumped. After oil, there is often a devastated economy, as happened in Spain after they stopped getting plundered gold from the Americas.

One argument about common currencies is to compare them with the United States. There is only one currency for the whole continent-wide federation. Not all the states are productive. If a state goes into deficit the Federal Government transfers funds. In Europe there is no federal government and so no automatic transfers of funds. Some commentators argue that the euro could only work if there was a federal European government. Would the same be true in East Africa? Could an East African shilling "work" without a federal government? But doesn't the CFA franc in former French Africa "work"? The author does not pretend to understand these questions. Does anyone really know what would happen? In Europe there is now a suggestion of "fiscal union" - common taxes to be set by a supra-national authority. Would that be necessary in East Africa too?

News report

Press release

Wikipedia article (not up to date)

South Sudan may join

Uganda Observer article

Academic paper on common currency in East Africa.

Last revised 31/12/11

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 The author experienced the East African Shilling in 1965 and found it useful to be able to travel from one country to another without changing currency. For the traveller it is certainly a useful tool. The author also crossed the frontier between Uganda and Kenya on motor bike in December 1965 when there was no official check of any kind. The only difference was that the road in Uganda was tarred while in Kenya it was Murram.

In Europe the common currency is also useful for travellers, though perhaps it's a problem for governments. There too there are no longer checks when crossing the borders (except to Britain).

Since 16/04/10

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