EAC's challenges toward a Monetary Union

The East African Community (EAC) is on a path towards becoming a monetary union, aiming to enhance regional integration and economic collaboration. To gain insights and learn from the experiences of other regional blocs, the United Nations Economic Commission for Africa (UNECA) partnered with the University of Bremen to organize a policy dialogue. Andrew Mold, the Acting Director at UNECA, shed light on the challenges faced by the EAC in this transformative journey during a discussion with CNBC Africa. Reflecting on the turbulent historical backdrop of the European Union (EU), Mold emphasized the importance of learning from the mistakes made by the EU. Europe encountered significant challenges, including the euro crisis and Brexit, which have shaped its trajectory over the past few years. Mold stressed the need for the EAC to analyze and adapt to avoid similar pitfalls. Harmonization emerged as a key theme in the conversation, with Mold highlighting the necessity of aligning various economic indicators and criteria across EAC member states to foster cohesion and stability. Drawing parallels to the euro project, Mold underscored the benefits of a common currency in facilitating trade and capital movements. However, he also cautioned against repeating the design flaws that plagued the EU, emphasizing the need for a well-thought-out approach. The performance of the banking sector within the EAC was another focal point of discussion. Mold drew attention to the dominance of the finance and banking industry in the region, with profits heavily reliant on trading in treasuries. He highlighted concerns regarding banking sector inefficiencies and urged policymakers to address the issue of limited funding to key sectors. The disparity in banking regulations and practices within the EAC, such as interest rate caps in Kenya, raised questions about harmonization and its implications for overall profitability and economic stability. Mold acknowledged the controversy surrounding the implementation of interest rate caps in the Kenyan banking sector, emphasizing the need to monitor its impact on credit accessibility and private sector growth. While expressing reservations about the policy's effectiveness, Mold acknowledged the underlying motivations behind such regulations. The conversation underscored the need for policy reforms and structural improvements within the banking sector to enhance efficiency and support economic development in the EAC. As the EAC navigates the complexities of regional integration and strives towards a monetary union, addressing these challenges will be crucial in shaping its future economic landscape.