Tanzania Stalls EA Monetary Union negotiations

President Jakaya Mrisho kikwete:
Combative  president combative Country?

Tanzanians have, as usual, stalled the negotiations on the creation of Monetary Union in East Africa. Media reports say that the Tanzanian delegation to the task force on the creation of a monetary union, at Entebbe, Uganda, opposed every item in the background Paper.

The background paper will eventually become the protocol for the East African Monetary Union.  At the table for discussion was Article 24 which proposes a universal monetary and fiscal policy.

President Kibaki of Kenya:
The Giant of the region worrying Tanzania

The delegation also stalled article 17, which proposes that member states coordinate tax policies at the community level. This will require that partner states to disclose fiscal policies to other partner states.

These two proposals mean that member-states will have to cede some of their sovereign power to a regional authority such as an East African Central Bank and common Customs Authority.

The refusal by the Tanzanian delegation to discuss these issues did not surprise many Observers in the region. Tanzanian delegations have always stalled discussion on the creation of East African Common Market right from the start. At times, said a delegate familiar with Tanzanian attitude, “they just flatly refuse to discuss an issue, declaring an imaginary dispute.”

It is for this reason that the integration process has always virtually been forced down Tanzania’s throat, says a source familiar with the process.

Beginning with the East African co-operation in the 1995 to the customs Union in 2005 and the East African Common Market in 2010, Tanzania is the reluctant partner, said the source. In fact, she agreed to the East African Common Market protocol when it became clear that other members were ready to leave her out.

It is not clear why she is the reluctant partner. Experience shows that she has benefitted immensely from the integration of the region. Tanzania has cut a niche market for its exports to Kenya, the largest market in the East African Common market block.

An Analysis of the trade data shows that Tanzania manufactured exports to Kenya rose by 2000 percent from US$6.6 million in 1998 to US$135.4 million a year in 2010. Kenya’s exports on the other hand rose by 243 per cent from $188.7 million in 1996 to $392 million in 2010. However, Tanzania’s informal exports to Kenya far exceed the formal exports.

The perils of her reluctance to join the EACM are also glaring. It has been reduced investment flows from Kenya and a growth in smuggling.

With the expansion of the East African Community to include Burundi and Rwanda and also South Sudan, Tanzania is no longer a favoured destination for Kenyan investors.

Unlike the past where Kenya competed with Britain and South Africa, as sources of investment funds into Tanzania, Kenyans are looking elsewhere to invest. In the recent past, some Kenyan Companies have divested from Tanzania to invest at home. Others have looked elsewhere.

For instance, Major Kenya retail outlets appear to have shunned Tanzania denying the country’s manufacturing sector a major outlet for their products. Nakumatt Limited, the largest retail Chains in Kenya has already opened three branches in Uganda and one in Rwanda. Only Uchumi Supermarket has opened a branch in Dar-Es salaam, Tanzania.

Banks are also following a similar trend. For instance Kenya Commercial bank, the first Kenyan Bank to venture into the Tanzanian market in the 1990s boasts of only 11 branches in Tanzania; 14 in Uganda; 19 in South Sudan and 9 in Rwanda.

Equity boasts of 38 branches in Uganda and 4 in South Sudan. It has its eyes trained on Tanzania and Rwanda. Rwanda is higher in the radar than Tanzania.

One of the benefits of Monetary Union is an increase in intra-regional trade and investment which lead to better economic performance at home. Tanzania, by being a reluctant partner is losing out on investment funds from the region’s economic powerhouse-Kenya.

 Further, unilateral increases especially in Consumers taxes, had spawned increased smuggling of consumer goods from Kenya. A Tanzanian newspaper recently reported that smuggling of Kerosene-a vital Kitchen input among the rural folk and urban poor- from Kenya to Tanzania has risen following the increase in tax on Kerosene in Tanzania.