Kenya is positioning itself to become the dominant power in the East African Community, a regional intergovernmental organization that also includes Uganda, Tanzania, Rwanda and Burundi. Recently, the group's members signed a monetary union protocol, which paves the way for a common currency and may eventually lead to the creation of the East African Federation, a more tightly knit political union.
All member states stand to benefit from a common currency. Uganda and Tanzania, for example, are emerging as potentially large oil and natural gas producers, and as such are attracting the attention of foreign investors. But rapid foreign investment causes a country's currency to appreciate sharply, and adopting a common currency would mitigate that risk. In addition, as the region's dominant exporter, Kenya would thrive in a common currency, as Germany has in the eurozone. And Uganda, which imports more Kenyan goods and services than any other community member, would be able to buy Kenyan wares more cheaply.
However, as the eurozone has shown, establishing a common currency is risky. It entrusts monetary responsibility to a single entity — in this case, the East African Central Bank — making it difficult for individual countries, which have dramatically different fiscal and pecuniary policies, to resolve their own issues. In any case, the process will take some time for the community members to implement the requisite reforms for adopting a common currency.
With its comparatively strong economy, its role as the region's financial nucleus and its infrastructural advantages, Kenya is the key member of the East African Community. Nairobi wants to reinforce its position as a gateway into East Africa and wield greater political power within the community — a desire that has not gone unnoticed by its rivals. Indeed, competition among the community members has led to some friction. For example, Kenya, Uganda and Rwanda have cooperated on some projects without including Tanzania, Kenya's natural rival. Though this competition has created an image of fragmentation within the East African Community, ultimately all member states see the value in the greater social, political and economic integration afforded by the potential East African Federation. So while some states may bluster, they will not obstruct the group's formation.
