Almost 20 years after the EAC Treaty has been signed and six years after committing to the establishment of a common currency in East Africa, it can be said that compliance with the outlined performance criteria is rather mixed and that EAC partner states still have to improve their economic convergence by 2024. However, Bass et al. (2018) note that the EAC, based on formal membership criteria, is currently not significantly less prepared for a single currency than the eleven founding members of the euro area in the run-up to 1999. Also, when compared to the SADC’s efforts for economic convergence, the EAC tends to shows better fiscal discipline and seems to achieve similarities in inflation rates more consistently and with less dispersion (Redda and Muzindutsi, 2016). Finally, one should consider that the three founding countries of the EAC – Kenya, Tanzania, and Uganda – tend to comply with the four performance criteria more consistently than the whole EAC, with the exception of fiscal deficits.
A few final remarks with regards to the EAC convergence criteria have to be made. Some weaknesses of the above mentioned criteria make a sound and reliable evaluation challenging.
First, some concepts lack concrete definitions, e.g. which price index should be used in measuring the headline and core inflation between countries. Second, a sound measurement of the variables in question to make the criteria both comparable and operational is not entirely guaranteed (Durevall, 2011). Third, one may label the choice of ceilings for fiscal deficit and public debt ratios as arbitrary or even inappropriate since they are not taking into account for cyclical conditions or individual circumstances of individual countries in their absolute manner. Fourth, the selected convergence criteria can be manipulated in the short-term, i.e. in the three year run-up to monetary unification in 2024, to achieve membership (Masson, 2015).35 Therefore, Adam et al. (2016) propose to adjust the current performance criteria for current account balance, real exchange rate indicators and private non-guaranteed external debt as explicit convergence criteria.
In any case, the EAC should improve the quality of information of specific indicators to monitor convergence in the region, establish a surveillance mechanism or institution to ensure adherence to the defined criteria, and push its member states to forgo further contradictory monetary integration with other African communities. For a successful transition towards monetary unification, the EAMU will finally require an institutional framework to enforce sound macroeconomic and fiscal policies (Kuteesa, 2012; Ltaifa et al., 2014).
35For example, fiscal deficits can be manipulated by postponing expenditures or bringing forward revenues in the period 2021 until 2024 (Masson, 2015).
7 East Africa in Light of Traditional OCA Theory
7.1 Labour Mobility
The loss of exchange rate flexibility and independent monetary policy requires alternative channels of adjustment in the presence of asymmetric shocks within the proposed EAMU.
Labour mobility can constitute such such alternative adjustment mechanism in East Africa.
Traditionally, labour mobility in East Africa is considered to be relatively high, though comprising mostly of mobility in the informal sector (Buigut, 2006). According to Durevall (2011), it is common in the East African region that ethnic groups live across borders, such that many people speak the same language and have relatives in the neighbouring countries. In addition, many people in the region speak Swahili, and English is an official language in almost all countries, including the three potential candidates for an EAC enlargement. A common language, shared colonial experience, and cultural affinity create potential for high level of labour mobility, especially for the core EAC countries Kenya, Tanzania, and Uganda. When compared to the EMU, where different languages and cultures constitute a significant burden to intra-European migration, labour mobility in East Africa might have the potential to absorb the impact of adverse disturbances, at least to a certain extent (Riso et al., 2014).
In the East African region, migration flows have increased significantly over past years, with only few exemptions as shown in Figures 7.1a and 7.1b. Intra-East African emigration in absolute terms has especially risen from 2013 to 2017 with the largest increases in the DR Congo, Rwanda, South Sudan, and Sudan. In contrast, emigration remained fairly stable in Ethiopia, Kenya, and Tanzania.36 With regards to intra-East African immigration, Uganda and South Sudan have currently the highest number of immigrants, amounting to roughly 1.56 million and 0.82 million, respectively.
However, migration flows to and from the East African countries as a whole remain relatively low.37 Intra-EAC and intra-East African migration has only reached 1.0 and 1.3 percent of the total population in 2017, respectively, lying well below the world average migration rate of roughly 3.5 percent (Alper et al., 2016). In comparison, 4.1 percent of the EU citizens of
36Unfortunately, the analysis is constrained by data unavailability and quality issues as the underlying national surveys are irregular and often incomplete.
37For more details, see Table A2.8.
Figure 7.1: Migration Trends in East Africa (in thousands, 2000–2017)
(a) Emigration (b)Immigration
Source: World Bank (2019b) and own calculations
working age have worked and lived in another EU country in 2018 (Paul et al., 2018). Although being three to four times higher than the comparable East African statistic, this level is likely to be too low to work as an alternative channel for adjustment in the presence of asymmetric shocks. In addition, the magnitude of migration varies significantly between the countries in the region. The small landlocked countries of the EAC – Burundi, Rwanda, and Uganda – have higher emigration rates than the large ones, with rates ranging from 1.4 percent in Uganda to 3.4 percent in Burundi, while South Sudan has the highest emigration rate of 7.9 percent. The same can be observed for the immigration patterns. While citizens of Burundi, Rwanda, Uganda, and South Sudan mainly migrate to other member states of the East African region, Kenya and Tanzania are mainly exposed to emigration to and immigration form countries outside the region. The same holds for the three candidates for an EAC enlargement, with Ethiopia facing least emigration to the region and receiving almost solely immigrants from South Sudan.
Figure 7.2: Migration Patterns in East Africa (in percent, 2017)
(a) Emigration (b)Immigration
Source: World Bank (2019b) and own calculations
While migration flows within the region often display a significant share of overall migration, the economies present substantially different migration patterns as shown in Figure 7.2a, and 7.2b, as well as Table A2.8. First, citizens of Burundi, Rwanda, Tanzania, and Uganda mainly migrate to and receive citizens from other countries of the East African region. For these countries, geographic proximity seems to be an important factor, reflecting cultural and ethnic similarities. For example, top destination and source countries for Burundi’s citizens are Rwanda, Tanzania, and Uganda, as well as the DR Congo. Rwanda and Uganda display similar migration patterns with closest ties to DR Congo, Kenya, Rwanda, and South Sudan. Furthermore, Ethiopia, Kenya, and Sudan record most migration outside the region. While Kenya’s top destination countries are outside Africa, i.e. to the United Kingdom and the United States, the largest sourcing country is Somalia, followed by Tanzania and Uganda. In addition, Ethiopia has its strongest migration ties with the United Kingdom, Saudi Arabia, and Somalia, whereas Sudanese people mostly migrate to the Arabian Peninsula and South Sudan. However, for the whole region, most migration flows are towards or from the Sub-Saharan African countries.38
In addition to being relatively low, migration in East Africa is mostly not in response to asymmetric disturbances, but rather caused by poverty, violent conflict, and environmental issues (Flahaux and De Haas, 2016; Adepoju, 2001). Predominant migration towards richer countries causes further issues as the source countries are suffering from brain drain, which has a significant impact on sustainable growth of those countries. This holds especially true for Burundi as it is currently the country which is least able to hold on to its relatively small pool of talented and skilled workers (Andersen, 2018; Adepoju, 2001).
However, the EAC’s Common Market Protocol seeks to promote the free movement of workers within the Community. Article 10 of the Protocol guarantees the free movement of labour, non-discrimination, and entitles workers to apply for employment, move freely within territories of the partner states, and stay in the respective partner state for the purpose of employment, among others (EAC, 2009). When fully implemented, the Common Market has the potential to significantly increase labour mobility within the region by removing current barriers to cross-border employment. Yet, there exist some major unresolved issues and concerns. Annex II of the Protocol reduces the scope of free movement of labour to highly skilled workers only.
Semi-skilled and unskilled workers as well as public sector employees are therefore, not covered
38For more information on top destination and source countries, see Ratha et al. (2016).
by the commitments of the EAC partner states (Alper et al., 2016). In addition, as per Article 10 (3), national labour laws will remain relevant, which entails the potential for contradictions and conflicts.39 Further obstacles include predominantly complex procedures for obtaining work permits, weak provisions for mutual recognition of education, professional qualifications and experience, as well as language barriers, among others. Countries which have a relatively low share of skilled and educated workers when compared to the rest of the region, are expressing another issue. They are concerned that lifting all barriers to intra-East African labour mobility would allow more skilled and educated workers, e.g. from Kenya, to drive out local citizens from the few formal and relatively well-paid jobs (Alper et al., 2016; Basnett, 2013).
The progress of eliminating the remaining legislative restrictions on the movement of labour in East Africa is slow. First, the current EAC member states have not yet fully aligned their national laws with the Common Market Protocol. While Kenya and Rwanda have made some improvements,40 Burundi, Tanzania, and Uganda have not repealed national legislative restrictions and even added further restrictions after the Common Market Protocol has been signed. Second, the harmonisation and mutual recognition of professional and educational qualifications, especially for engineers, architects, and medical doctors, is advancing at a slow pace (Alper et al., 2016; Basnett, 2013).
To conclude, reported labour mobility remains fairly low in the East African region when compared internationally. Moreover, the establishment of the Common Market, including the removal of restrictions on the free movement of labour, has not been entirely successful yet.
Therefore, it is unlikely that labour mobility constitutes a sufficient alternative adjustment mechanism to the national monetary policies when faced with asymmetric disturbances.