The East African Community (EAC) Monetary Protocol will be signed by Dec. 31, a senior government official said on Friday.
Minister of Finance Njeru Githae told journalists in Nairobi that the technical committee comprising of all five partners states central banks have alreadyironed out 85 percent of the work.
"We are optimistic that by the end of this year negotiations on EAC Monetary Union will be signed as per the wishes of the partner Head of States," Githae said at the opening ceremony of the 27 Annual Conference of the Insurance Institute of Kenya.
The conference brought together over 100 experts in insurance industry to discuss the impact of regional integration on the insurance sector. The member states include Kenya, Uganda, Tanzania, Rwanda and Burundi.
"The agreement will give the road-map for the institutions to be established as well as commencement date for the single EAC currency. When fully implemented, any financial entity licensed in any Member State will be able to work in the rest of the bloc," he said.
The region seeks to introduce a single currency under a monetary union. The monetary union in the EAC with a combined population estimated at 135 million and with a collective GDP of 79.25 billion U.S. dollars will have a great positive economic impact for the entire region.
The EAC is also targeting the creation of a political federation, a borderless single state made up of the five countries, Burundi, Kenya, Rwanda, Uganda and Tanzania, led by a single President and exercising a single foreign policy.
To get the vision of a single state in motion, the Arusha-based EAC Secretariat has been working towards a foreign policy, a common defense policy, a customs union, which is currently in place and the Monetary Union, which aims at a single currency.
The Kenyan finance minister added that the EAC has learnt from the EU zone financial crisis. "We have agreed to harmonize the methodology of handling economic statistics throughout the region, " he said.
He said that there will be penalties for countries that don't comply with fiscal and monetary policies. "So, the protocol will contain enforcement mechanism for those who fail to achieve agreed figures such as budget deficits and inflation targets," he said.
The minister of finance said that significant work has been done in setting the framework for a seamless integration of financial services following the coming into force of the EA Common Market Protocol in 2010.
"In respect to insurance services, a revised Memorandum of Understanding on Cooperation in Regulation and Supervision of the insurance industry has already been signed between Insurance Regulatory Authorities of the EAC Partner States," he said.
Githae said that the agreement is expected to greatly enhance the movement of services in the economic bloc as well as provide an anchor for the Monetary Union as part of the integration of the financial sector in the region.
He noted that the agreement is in tandem with the recent worldwide practice of globalization that is forcing regions and continents to form unions and other economic groups that promote sustainability.
Insurance Regulatory Authority Commissioner Sammy Makove said the agreement signed by the five partner states will provide a framework for cooperation among insurance industry.
"It calls for increased mutual understanding and exchanging of information and assistance to the extent permitted by national laws," he said. "In particular, the deal enhances consumer protection, public awareness on insurance and capacity building," he said.
He said that the negative public perception towards the industry is the leading causes of apathy towards uptake of insurance products. "The industry has already embraced a code of conduct in order to enhance professional standards and encourage public trust," he said.
Commissioner of Insurance of Uganda Kaddunabi Lubega said that Kenya has the most developed insurance industry in the region with an estimated penetration rate of three percent compared with Uganda's less than one percent.
He added that the path to regional integration of services might be challenging but the opportunities presented are enormous. "Companies will be able to diversify their risks by spreading across the borders," he said.
Lubega who is also the East Africa Insurance Supervisors Association Chairman called for the industry to develop an industry wide integrated system across the member states.
"By embracing regional integration, the insurance sector will increase economies of scale from the 130 million strong market," he said.
IIK Director Aggrey Mulumbi said that the discovery of minerals and oil resources in the East African region, together with the massive infrastructural developments and changing weather patterns are presenting new areas of risk that the regional insurance industry must look to address adequately.
"Adequate research needs to be done in order to ensure that products respond to client needs," he said.