The outreach to empower small businesses to participate in regional trade under the Rapid Results Initiative recently announced by EAC Cabinet Secretary Peter Munya is laudable and timely. But while it is to run for 100 days, its benefits could be bolstered with fiscal measures to ease cross-border trade.
A case in point is the review of financial laws to integrate a regional automated teller machine (ATM) switch, which was due in 2015. It is aimed at enhancing cross-border regional ATM interoperability, reducing the cost of doing business.
The review would not only eliminate exchange rate fluctuations but also cut cross-border transaction costs — the same benefits expected from the anticipated single currency.
Another measure would be to encourage a regional financial environment that allows for more robust cross-border fintech services. Having largely scaled the hurdle of banking the previously unbanked, the telco-bank partnerships have not only been inclusive but their mobile money platforms have served as enablers of business.
However, while one can make a cross-border transfer and receive money between the mobile network platforms in the different countries, it is about the only thing you can do.
There is no cross-border mechanism akin to a visa ATM card to allow payment by mobile money. One would have to withdraw money from a bank account to a mobile wallet then transfer it to the beneficiary’s mobile money account. Each stage incurs a cost.
Most of the fintech services are ‘ring-fenced’ within the separate national borders while the financial infrastructure begs for a change. For instance, the major Kenyan banks’ footprint need to be utilised for cross-border traders and the general EAC citizenry to benefit from the mobile tech advances, of which Kenya and the region has become a poster child, especially with the broad range of empowering fintech services.
Hastening the measures could lay a foundation for the seamless entry of a single currency in cross-border transactions. It could also provide a stop-gap solution ahead of the regional currency.
A United Nations Economic Commission for Africa (Uneca) study last October raised the red flag on the challenges EAC countries face in complying with key macroeconomic targets on fiscal deficit, inflation, public debt and foreign exchange reserves ahead of the single currency regime by 2024.
The EAC Monetary Institute Bill, which seeks to establish the currency’s core governance and policy institution, leading to a regional central bank, is also behind schedule. It was expected by 2015.
Passed in April by the East African Legislative Assembly, the Bill is awaiting assent by the six EAC member States.
Three more enabling institutions are yet to be established with other Bills in the early stages: The East African Statistical Bureau; East African Surveillance, Compliance and Enforcement Commission; and East African Financial Services Commission.
These factors threaten to delay the long-term benefits of a monetary union in terms of reduced costs and stimulating cross-border trade and movement of labour and capital.
Mr Mwaura is a commentator on regional issues. [email protected] Twitter: @gituram