DOCUMENT O F INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC US

C O m I N s

CONFIDErnIAL INI?OMTION

July 16, 1965

To :
From:
SubJect:

b ' ,

lers of the Executive Board

The Sccretary

Common Economic I n e t i t u t i m s i n East Africa

The attached memorandum on Common Economic Institations in East Africa ' a 8 been prepared as background for t h e 1965 Article X N consultations reports on t h e three East African countriee-Kenya, Tanzania, and Uganda. These reports will be ocheduled for consideration by t h e Executive DLreators before the infcrmnl Board

recess

Rtt:

(1)

Other Distributiou: Department Heads Divlsion Zhlefo

s <
I

DOCUMENT O F INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE

CONTATNS CONFIDENTIAL INFOTMATION

Common Economic I n s t i t u t i o n s i n East Africa

Prepared by Africun Depafiment and Exchange and Trade Relations Department
July 6, 1965

Introduction
A number of economic and monetary i n s t i t u t i o n s serve a l l three East African countries--Kenya, Tanzania and Uganda. These Include t h e Fast African Comon Services Organization, which controls and adminismrs major t r a n s p o r t a t i o n and communicat!ans f a c l l i t l e s , c e r t a i n f i c c a l , r e s e a r c h and s t a t i s t i c a l services, and the East African Currency Board, which issues the common currency, the East African shilllng, provides llmited c e n t r a l banking sw?vices, and mantlges t h e common reserves. A n i n f o r m 1 customs union formed by the three countries har resulted i n what is commonly known as t h e E a R t African Cormon Market, within which a wide rangc of goods, services, labor and c a p i t a l move f r e e l y . The trade and exchange controls vis-&-vis countries outside t h e area are b a s i c a l l y similar.

Tn order t o avoid lengthy r e p e t i t i o n s i n the 1965 A r t i c l e XIV consultations reports on these countries, t h e present paper has been prepared t o describe these comon features. It is divided i n t o f o u r sections:

I . East African Comon Service8 Organization

11. East African Currency Board

111.

East A f r i c a ' s Etllence of Payments

IV. Trade and Fkchange C o n t r o h in Eaat Africa

- 2 -

I .
1 ,

East African Common Services Organization

HxstoricaJ background

The present system of cooperation between Kenya, TanganyLka and Uganda has developed gradually over t h e p a s t h a l f century, It began w i t h t h e In f o r m a t i o n of a joint custcms union between Kenya and Uganda in 1917. 1926, control of t r a n s p o r t services owned by Kenya and Uganda was vested in a single a u t h o r i t y end a conference of' t h e Governors of' Kenya, Tangmyika and Uganda established machinery for s e c u r i n g further cooperatdon and coordination between t h e three t e r r i t o r i e s on patters of ccmmon i n t e r e s t , The =ea of cooperation was g r e a t l y extended d u r i n g t h e Second World W m , when a number of o r g a n i e c t i o n s operating on an Uast African basis was established.

In 1948, following propoee;ls put f o r t h by t h e then B r i t i s h Colonial Secretary Arthur Creech Jones, t h e Ea& African High Commission c o n s i s t i w ol' the Governors of Kenya, Tanganyika and Uganda, with a C e n t r a l Legislat i v e Assembly and an e x e c u t i v e vrganizaticn was established, The High Ccmmjsslon was responsible for the J O ~ % administration of v a r i o u c GerViCeS in t h e three countries. T h e Centra). L e g i s l a t i v e Aosembly ccnsidered and approved budgets o f various services of the High Commission rind l e g i s l a t e d on s p e c i f i c matters connected w i t h t h e s e Services. However, no b i l l could be introduced in the AsGembLy wttl-out the p r i o r a p p r o v a l of t h e High Commission which &so had the power t o refuse assent t o any b i l l passed by t h e Atxembly and t o declare a b i l l as passed even though it had not been passed i n t h e Assembly, The High Comission appointed p r j n c i p d execut i v e o f f i c e r s who acted as i t s o f f i c i a l advisors in t h e i r r c s g e c t i v e fields. The Governor of Kenya wac t h e ex of'ficlo chairman of the High Ccmmiscion-

The s w v l c e s p r o v i d e d by t h e High C o m i s s i o n included t h e c o l l e c t i o n and a d m i n i s t r a t i o n of custcms, exciGe and iccome taxes, running of railways9 harbors and c i v i l a v i a t i o n , and provision oi' post and telecomunicatiom. These aerviccc were d i v i d e d into two groups: t h e " s e l f - c o n t a i n e d SPrViceR" which paid t h e i r way and the " n o n s e l f - c o n t a i n e d services" which were p r m c i p a l l y financed on R current, basis from funds received from t h e three East A f r i c a n Governments and g r a n t s from the United Ktngdom, includLng t h e Colonial kvelopment and Welfare Funds.

An Economic and F i s c a l Commission under t h e chairmanship of Sir Jeremy Raisrnan was appointed i n 1960 to examine t h e existing East African comnon market and common services and t o recommend Eeacures t u a c h i e v e further econcmic coordination and f i s c a l uniformity and to provide *he East African High C o m i s s i o n with independent revenue on a continuous b m i s .
The Coxmiscion proposed removal of t h e remaining impedinents to i n t e r = t e r r i t o r i a l trade and t h e e s t a b l i s h m e n t of a d i s t r i b u t a b l e pool of revenue made up of fixed p m p o r t i o n s of recelpts from company taxes and customs and excise d u t i e c in t h e t e r r i t o r l e E . It further recommended thut 5 0 per cent C J f these payments to the pool be earmarked f o r t h e High Commission*s n o n s e l f - c o n t a i n e d services snd that the other h d f should be equally

- 3 =

d i s t r i b u t e d among t h e three t e r r i t o r 4 . e ~ . This l a t t e r rccommendatlon had t h e e f f e c t of r e d i s t r i b u t i n g revenues frcm ccmpany taxes and CustcrIlls and excise d u t i e s ir, favor of TanganyFka and Ugaada. In keepingwith the rccommendatlon, the Distributable Pool came into operation on July 1 , 19610

I n anticipation of t h e independence of Tangalma, Kenya and Ugmda, t h e B r i t i s h Government convened E , conference of' p o l i t i c a l l e a d e r s and o f f i c i a l s of t h e three countries as well as t h e High C o m l s s i o n i n
1961 i n London t o consider the future of East Afrlcan cooFeration.

dm:

agreement was reached at t h i s conference t o continue t o provlde common services on an East African basis and through an East African C @ m m O nServlces Organization (EACSO) s e t up t o replace the East Afrxan High COIWIILSS~O~. The contracting governments agreed t o I n c r e a m if necessary t h e i r contribution through the Dlctr-l?,utable Pool W d , t o finance the efficient oFeration of t h e Organization and t o assume f i n a n c i a l r e s p o n s i b i l i t y for i t s net l i a b l l i ties,
The agreement Tins of indefinite duration, but each of the contracting governments has t h e r l g h t t o terminate its p a r t i c i p a t i o n at any tune by

giving not less than one year's notice.Mdif'ication of t h e agleement may be made with the consent of each of t h e contracting governments.
2.

Administrhtion of the Organization

The UCSO, formally established on kcember 1, 1961 was authorized t o adminlstcr on b e h a U of t h e three governments, the scheduled common Gervices t o provide machinery t o facilitate t h e coordination of those a c t i v i t i e s which might be of commn interest t o the three countries and to enact measures with respect t o certain, Lpecifxed matters t o which l e g i s l a t i v e effect muy be given i n the three countries. The Organization may wind Up any GerviccRdmjnisteredby it and may esbablish advisory cr consultative bodieE i n respect of any other services. The p r i n c i p a l scheduled common
services m e :
The East African Railways and Harbours Administratlon The East African Post;, and Wlecomunications Administration The East Africhn Directorate of Civil Aviation %he X a b t African Mcteol o l o g i c d Department The I k s e r t Locust Survey The East M r i c a n Customs and Excise Cepartmeut The East African Income Tax Department m e East African Reserlrch Services The Eutst African Office i n Londori The East A f r i c a n I n d u s t r i a Council The East African S t a t u t i c a l Department

Zanzibar, t l i i % i i i % o ~ a ~ r n % ~ ~ " 6 ?

had i n t h e past received some of i t s services on an agency basis, and sent an observer t o the Conference.

-%hxz African High Com~ission,

- 4 =

The E a s t African Literature Bureau The East African Accountant General's Department

The East African Auditor General's B p a tment ~ The Thlka Road House %he E a s t A f r i c a n Hides aud Leather Bureau

The principal. executive bodies of the Organization a r e t h e E a s t Afrlcan Common Services A u t h o r i t y and Mlnisterlal Committees. The former Consists at p r e s e n t of t h e Vice P r e s i d e n t s of Kenya and TanGsnyIka ~ n t dh e Prime Minister of Ugancle, and nas r e s p o n s i b i l l t y for, and the g e n e r a d i r w t i o n and c o n t r c l uf, t h e performance of the e x e c u t i v e f u n c t i o n s Of the Orcyaization. The decisions of the AxLhority m e a r r l v e d at by t h e U r n mous vote of i t s members. The A u t h o r i t y appoints a Secretary General of t h e Organization who is the p r i n c i p a l executive ofricer.
The Authorlty is ass'lsted by various M1nisteria.l Committees ( t h e 5 0 c a l l e d t r l m i r a t e s ) each of which consists of one member (a Minister) from each p a r t i c i p a t i n g country. At present there are f i v e such Ministerial Committees: the Financial M i n i s t e r i a l Cormnittee, the Communications Ministerial C o r n i t t e e , t h e Com.merci&l. and Industrial Co@rdlnations bHaisteriai Co:rmlttee, tke Tabor bIinisteria1 Cornittee, ~ r . d t h e M i n i s t e r i d Cornittee In cher;ZP of Reseerch and S o c i R l Servicec.

The A u t h o r i t y may assign responsibilrties to the Minlsterial Committees f c r the a d m i n i s t r a t i o n of any of I t s services or ?'unctions s u b j e c t to any d l r e c t i o n c it might issue. In case of a disagreement on m y issue between the members of a M j n i s t e r i a l Committee or be-tween t h e Corn-t t e e , on t h e one hand, and t h e General Manager of t h e Railways and Harbouss Administration, t h e Postmaster-General and tile Chairman of t h e E a s t Mrican Airways Corporation, on t h e other hand, in their respective meas o f a d m i n i s t r a t i o r , , t h e issue m u s t be referred t o t h e Authority f o r final. declsione The A u t h o r f t y may d i r e c t t h e holding of J o i n t m e e t i n e s of various rninist1~r3.d convnlttees t o ensure t h e necessary c o o r d i n a t i o n of their a c t i v l t l e s -

T h e Organization, l i k e i t s predecessor, has a Legislative body c a l l e d t h e C e n t r a l Leglsletjve Assembly. I t consists of a speaker appoultcd by the A u t h o r i t y alld 44 mmbers consisting of t h e 15 members of t h e f ' l V e 14inisterial Committees, nine members f r o m each of t h e p a r t i c i p a t i n g COUIIt r i e s elected by the r e s p e c t i v e l e g i s l a t u r e s , and two ex officio members, viz. J t h e Secretary General and the Legal Secretary o f ' the OrganizationA l questLon6 proposed f o r decision i n t h e Assembly a l e determined by a m n J o r l t y of t h e v o t e s of t h e members p r e s e n t and voting. Tne Asselnbly, however, is not a u t h o r u e d to i n i t i a t e b i l l s imposing any changes on the Organization. A b i l l passed b y t h e Assembly m h s t be msented to by each of' tlhe East A f r i c a n g o v e r n m c n t ~ .

- 5 -

General. Fund which receives its revenues p r i n c i p a l l y frcm t h e Distributable Pool Fund. The Organization a l s o maintains a Contingencies Fund t o meet unforeseen expenditures for which no other financial provision existh

3.

The Distributable Pool Fund

As mentioned earlier, the DistrlbutaSlc Pool F'und was established on July 1, 1961, i n accordance w'ith the recommendation of' t h e Raisman Report. The purpose of t h e a r r a e m e n t was t o assure nonse1f"contained services fit' a reliable and steady source of revenue and t o d i s t r i b u t e c o n t r i b u t i o n s by the Participating goverrment E t o t h e budget of the Organlzatfon, according t o t h e f i n a n c i a l strength of each of the participating countries*

The Distributable Pool Fund receives as i t s revenues 6 per ce the custcms and excise taxes, and 40 per cent of the company taxes lected by the Organization on behalf of t h e three governments, plus cm3Xd.n The Pool'sshare i n t m other minor mounts from miscellaneoussources. CoUections is determined on t h e b a s i s of revenues net of the Costs Of conect?.on of taxesI The t h r e e governments also reimbursethe &gmlzation for Costs of collection of taxes, which mounts are c r e d i t e d t o t h e 'OOl* The l a t t e r amount plus one half of t h e Pool's r e c e i p t from t a x e s i s subSeqUelltly credited t o t h e General Fund andthe remaining one haJ.f is Paid back t o the three participating governments i n equal shares.

In 1962/63, the Distrilmtable Pool Fund received E4.87 million 86 its share of company t a x , customs and excise duties; uf t h i s amount E - 4 4 milkon W a s credited to t h e General Fund and the balance was paid to t h e Pmticipating countries in equal Shares, The General Fund a l s o received from the countries U.59 m i n i o n b e h g the assessed cost of a tx co2leCkiOn*

4 .

Servjccr; provided by FACSO

The self-contained serviceo provided by EACSO comprise t h e East African Railways and Harbours Adrninistrat,ion, the East African P. s t s and Telecomunictttions AdmLnlGtration end the East African Airways Corporation. Fhe nonself-contained services include Gcrvices in reopect of collection of taxes, meteorology, agriculture and f i s h e r i e s , c t a t l s t i c s , law and order, and s o c i ds e r v i c e s Luch a6 health,education, etc. In 1963, the common services eruphyed Gome 50,000 persons and paid out newly E22 milliorl in

'

These t w d o are levied on t h e income of manufacturing and finance companies operating in East Africa,

1/

" " "

- 6 -

(In millions of pounds)

Distributable Pool Fund's share of collectionrl of revenues from: Customs and E x c l c e

taxes

Company t a x

1 . 1 9 1a 0 7 2.26
2 -66

Total
Less t o t a l refunds to p a r t i c l p a t i n g governments (-)
Net contributions by partfcipating countries to General Fund
Per cent contrlbuted by each government

1-09

1.21

1 . 1 8

1a 2 3

-0.76

-0

.76
0.36
0 . 4 2

1 . 5 0

1 . 8 1

0.33

0.38

46.7

Source:

Data obtained during consultations.

-"

Total revenueg of the Organization in 1963/64 jn respect of both the ; / self-contained and noneelf-contsined services amounted t o E 49.4 million, s and t o t a l expenditures E 54.8 million (Table 2) Recurrent revenues and expenditures of the three self-contained services in 1963 amounted t o E 42.3 million and E 42.7 million, respectively. In addition, the three services incurred a c a p i t a l expenditure of E 5 . 1 million during t h e year. Railways and Harbours Adrniniatration, w i t h recurrent revenues and expenditures in 19G3 of E 27.3 million and E 2 8 . 0 million, is t h e largeot enterprise among these administered by the EACSO.

This does not Include c a p i t a l proceeds of the self-contained servicee, the r e l e v a n t data for which are not readily obtainable.

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Table 2.

-7Composite Budget of Common Services1;/

(In thousands of pounds)

?&venue
Railways and Harbour8

Expenditure

Current
Cbpital Subt ot a1

II

3,956

27,315

31,941

Post and Telecammunlcat ions Current Capital

Subtotal Airways Current Capital

7,453

7,453
7,187
402

Subtotal
Total: Self-contained services (1963) Nonself-contained (1963/64)

7,623
42,3911/
7,042

Source:

Grand t o t a1

49,433

Data obtained durlng consultations.

54,849

1/ The financial year of nonself-contained services is t h e m n e as t h a t of p a r t i c i p a t i n g c o u n t r i e s , i . e . , J u l y to June. The financial. year of t h e selfcontainedoervicea coincides with t h e calendar year. Data for self-rontained services are those for 1963 and data for nonself-contamed 3er 'ices are estimates for 1963/64. 2/ Current revenue only. Current and c a p i t a l expenditure.

The Grgaalzation's budget i n respect of the nonself-contained services i n 1963/64 was E 7.0 million, up E 2.0 million from 1960/61. O f t h i s amount, E 1.4 million (20 per cent) was received as g r a n t s from foreign (mainly U.K. ) governments end organizations. Most of the balance was supplied by the p a r t i c i p a t i n g governments through the Distributable Pool Fund. I n 1963, expenditures on provision of economic s e r v i c e s ( i.e , meteorology, aviation,

.
- 8 -

'.

agriculture, forestry and fisheries, statistics) accounted for 29 per cent of the total, general services (Including defense) for 27 per cent, recurl'cnt f i n a n c i a l obligations (debt service, pensions, e t c . ) for 18 per cent, and s O C l a 1 services (health and education) for 11 per cent. The number and scope Of tlCtiVitieS of nonself-contained services have expanded over t h e years.
Chart I shows the geographical distribution of the common services.

I CHART
Geographical Distribution of Common Services

FRESHWATER

- 10
11.

East African Currency Board

1 .

Historical background

The East African Currency Board (EACB) was established in Decenhx- 1919 to provide currency f o r the Kenya Colony and P r o t e c t o r a t e and the Uganda Protectorate. In 1920 Tanganyika was also added to the East African currency area, after a League of Nations mandate had been glven to the United Kingdom to administer the territory. On January 1, 1-936, Zanzibar Joined t h e currency m e a and, In 1342 and 1943, the F a c t African shllling was introduced as legal tenAer in the Britlsh-occuPied I t a l i a n Somaliland, Eritrea, and Ethiopia, as w e l l R S in t h e British protectorate of Somd.iland. A t present t h e East African currency area COmPrlses Kenya, Tanzania, Uganda, and Aden.

Thus, the East Iifr Acarh Currency Board operated L k e other Rrltish currency bnards as an automatic money changer. It i s s u e d legal tender l o c a l l y on demand against deposit,s of sterlhg In London, and redeemed t h e local currency on demttnd by paying oct sterling. The Board had no discretion over t h e auantlty of currency in clrculation which was d e terminea by changes in the balance of mayments positLon af t h e canstitucnt territories. The Board or the colorliai authorities could t h e r e f o r e not At the rate 01' EA Sh 20 to E s t g . 1.
" " "
" " "
" " I " I" " "

follow an mdependent monetary, credit, or balance of payments p o l i c i e s . It had some d i s c r e t i o n i n t h e - selection of invetkments-provided the s e c u r i t i e s chosen were gllt-edged public securlties expressed in a s t e r l i n g area currency other than i t s am, and easily d~sposableon the London market. It d i d not invest i n loans issued by the a u t n o r i t i e s of t h e c o n s t l t u e n t t e r r i t o r i e s it served until 1955 when the regulations were amended

Uhile the Board was authorized t o deal with any on (provzded the minimum limits set by the Board were adhered to), in pl aLtlce it d e a l t almost exclusively wlth t h e commercial banks operating i n t h e East African

currency area.
A t t h e outset, the East African Currency Bmrd was f a c e d u i t h cons l d e r a b l e d i f f i c u l t l e s I n i t s attempt t o replace t h e I n d i a n s l l v e r rupec which c i r c u l a t e d i n Kenya and Uganda, and, later, the coins of India standards issued by the German Government and German companres that were used In Tangatlylka. The urgent need t o r e p l a c e these coins arose primarily from their fh.IctuQtlng value which followed the changes In the silver prlce. But, whereas the West African Currency Board a f t e r i t s egtablishment in 1912 had been able t o r e p a t r i a t e t h e British silver coins formerly circulQtinfZ i n West Africa a t their face value, the East African Currency B a r d was not Successful i n making slmilar arrangements wit!] t h e G o v e r t ~ e n t sof' India and Germany. It had no a l t e r n a t i v e b u t t o retire the coins at t h e i r buUlon value at o. loss of about E1.75 m l l l l o n .

Table 3 contuins d a t a on t h e currency in c l r c u l n t i o n , the currency reserve f'und, and the e x t e n t to which the currency wa3 covered by t h e reserve fund, It was not until 1950, more than 30 years a f t e r the establlshment of the East African Currpncy b a l d , 1,ba.t; the rccierve f u n d t-:n07~ll%td to more than 100 per cent of t h e c u r r e n c y in c i r c u l a t i o n . The low point vas reached i n 1932 durlng t h e Great Depression when currency i n c i r c u h t l o n h a d f a l l e n t o E3.6 r n i l l m n and vas covered by a reserve fund of less t h a n EO. 4 million, 1 .e., about 10 per c e n t , Part of t h e gap beforc 1950 between t h e currency in clrculatlon and the anlount of the currency reserve fund was covered by clams on t h e Roverlments of the mainland t e r r l t o r i e s whlch were Woranteed up t o E1.5 mllllon by means of local legislation i n Kenya, Tanganylka and Uganda which included authority to t a k e up equivalent s t e r l i n g l o a n s in London. The consideruble increase .in currency between 1941 and 1945 was t h e result p a r t l y of t h e much l a r g e r area i n which khe East African shilling c i r c u l a t e d , and F r t l y of the increased trade sllrplus which led t o 3arge nccumulat ions of s t e r l n g b a l a n c e s i n London.
2.

zeveloprnents i n 1955-60
The year 1955 was marked by t h e f i r s t departure from the U C U ' s r o l e

as a purely automatic money changer, for i n t h a t year It was allowed t o

holdsecurltier; of its c o n s t l t u e n t t e r r l t o r i e s . Thus, w l t h l n the limits for the f i d u c l a r y issue s e t by the Secretary of Stute, the U C B I n a, position t o extend c r e d i t t o t h e governments of t h e c o n s t i t u e n t t e r r i t o r i e s

- 12 Table 3.

Movements of East African Currency, 1925-55

(In miliions of pounds)

Year ending June 30
1925 Currency outstanding

Currency
reserve fund

Percentage cover

5.6

2 . 4
1.3

b3.6
27.9

1930

4.7
4.3

1935
1940
1941
1942

1 . 3

3 0 . 2

6 . 9
8 . 2

3 . 7
5 . 1
11-0

54. 0
6 2 . 1

1 4 . 1
2 1 . 1

7803
86.0
YO-7
93.9

1943
194b 1945 1946

18.2
22.5

2 4 . 8
28.4

2 6 . 6

24.5
24.b

23.4

95.4
96.8

19b7 1948 1949

1950

23.6
23.2
26.0

23 e 8
27.2

98.1
98.3
1 0 1 . 2

29.6

29-9
39 09

1951
1952

39.4
03
48.6

5 0 1 . 3
96.2

b6.5
50.3

1953

103 6
1 0 8 . 0

195b
1955
"

53 a 3
60.b

5 7 . 6 6 1 . 8

10203

Sources t " " " " J Re orts of the East African Currency Board.

13

i n t h e form of holding government or government-guaranteed securxtles t o the mtlximum of E10 million. The f i r s t such l o c a l lnvestment by t h e EACB tfas i n s e c u r l t i e s issued by Kenya and holdings a t t h e end of June 1956 mounted t o Fil91,OoO at nominal value. In t h e following year a U three mainland terrltories took up long-term loans frcm the EACB and t h e amount atdtaxrding at the end of June 1957 had risen to Ej .8 mlliion (sec Table 4) a In December 1957 the regulations were again amended and the maximum limit of fiduciary issue by t h e EACB WRS increased t o E20 mlllion, Total lending on June 30, 1958 had, however, not cxcecded ,~6.3 uJ.1ibn. A year later c l a m s by the EACB on t h e governments of t h e c o n s t i t u e n t t e r r i t o r i e s hadclimbed to ~8.9 million including t h e f i r s t lssue of securities by Eden amounting t o E0.g miuion,

I n 1959 t h e EACB was authorized to acquire local Treasury b i l l s (within t h e specified limit f o r fiduciary issue t o governments), and thl:s provide short-term finance for t h e governments concerned. The authorities of Uganda and Tanganyika trere t h e f i r s t to avail themselves of this new facil l t y . A t the end of December 1959 and June 1960 the EACB held E3.8 million and E3.1 mlUlon, respectlvely, of which E 2 . 3 million and EI.6 million were for the account of Uganda and t h e remainder f o r Tanganyika The t o t a l fiduciary issue (i.e., Treasury b i l l s and longer-term s e c u r i t i e s ) a t June 30, 1960 amounted t o ~13.1 mi] l i o n , i.e , , E6 3 million below t h e authorized maxlmum.

3.

Reconstltutlon In 1960

I n a n t i c i p a t i o n of independence of t h e various constituent territ o n e s ,t h e Board WCLS reconstituted in 1960, enlarged from *'our members to seven, and Its seat was transferred from London t o East Africa w9th i t s head offl ce i n Iiairobl. Instead of comprlslng Brrtiah Government representntives from the Colonial Offlce, the Treasury, and the office of the Crown Agents, as i n t h e past, Its new members were now t h e Secretary Genwal of the East African Common Services Organization as chairman (de facto, but not ex offlcln), the remanent Secretary t o the Treasury of Kenya, t h e Permanent Secretary t o the Treasury of Tanganylka, the Seere tar) b the Treasury of Uganda, the Flnanclal Secretary, Aden, the Fmancial Secretary, / a d b a r , and a technic11 expert. These members were st111 appointed by the U.K. Secretary of State for the Colornes, but t h e a c t u a l management was now in the hands of representatives of t h e member governments, and the day t o day d i r e c t l o n of the Board was exermsed from a seat within the teIrLtory of the currency area itself.
By bemg able to follow economjc events from a much closer range and through more frequent and intimate contacts wlth Government o f f i c i a l s and busillees L i r c l e s , the Board was now i n a b e t t e r p o s i t i o n t o t a k e a more a c t i v e role In making i t s own contribution t c t h e f lnmcing of economic activities. While t h e nev Board retained much of the s t r e n g t h and sirnpllclty of the old system whlch helped t o mslntbin general confidence i n the East African currency a t d high level, I t was now w ~ l l i r l gt o venture i n t o new directions and t o undertake functions ~n the monetary field which are

!Cable

4. E A C B :

Flducrary Issue t o Mvermn

&

(In millions o i pounds)

I[a_lun
Mal taken qp

of which: Treaeuy b i l l s Total avai&ble

E !!& !!
Total taken up o f which: Treasury bills Total available

&!0s!E Totel W e n ug o f which: Treasury b i l l s

Total uvallablc
"

ZW!bW

Total taken up

Aden

of w h i c h : Treasury b U e Totsl rvairnle

Total taken up of which: Treasury b i l l s Total available

Esat..AfYican Currency Board
Wtal fiduciary isarle: Government of which: Trsaeury bills lbtal fiduciary irsw to Qovsrmentauthorized

lourco: Re~ortsof the Eaat African Currency Board,

Inca

at eoet, b i l l s a t aominsl value.

. 0

- 15 generally associated with operations of c e n t r a l banks. W.e Board's regulations i n Its amended form prolx ed s u f f i c i e n t l e g a l basis f o r It explored ways i n which i t s lending t o the governenlarged action. ments could make %he g r e a t e s t c a n t r i b u t i o n . It s t a r t e d c r o p f i n a n c i n g f a c i l i t i e s with t h e d u s l aim of promoting exports and of a c t i n g 8 s a banker of Iss r e s o r t Lo the c c m e r c i a l banks. It became more flexible i n i t s policies with regard t o interest rates and exchange cGmmiSSiOnS* To f a c i l i t a t e banking operations i n general, it opened nnd maintained accounts f o r the commercial banks, thus introducing a m u l t i l a t e r a l z l e a r i n e ; systembetween t h e banks. I n order t o mprove currency distribution Over t h e whole t e r r i t o r y of the currency area, t h e Boardopened new currency c Acenters and "safe custody" facilities i n remote areas. General econcrnic conditions i n East Africa In 1960/61, and partly also i n 1961/62, were a f f e c t e d by a climate of p o l i t i c a l and other uncertainties. These l e d to anoutflow of funds, a decrease i n p r i v a t e c a p i t a l investment and a drawing down of bank d e p o s i t s . C u r r e y i n c i r c u l a t l o n at t h e end of June 1961 had decreased by E l 1 2 millic.? as compared n t h t h e end of June 1960 (see Table 5 ) . This decrease would haveheen even larger had not t h e c a p i t a l outflow been financed i n part by t h e commercial banks who reduced t h e i r overseas cash holdings and increased credits t o the private sector, These operatlons l e d t o a considerable d e t e r i o r a t i o n In order to redress i n t h e h q u i d i t y p o s l t i o n of t h e ccmmercialbanks. t h e s i t u a t ~ o n t h ecommercial banks r a i s e d t h e n minimum lending rate to 7 per cent in J u l y 1960 and t o 8 per c e n t i n October of t h e adme year. During 1961/62 notes and coins i n c f r c u l a t l o n decreased by only El.4 milllono

The general downturn in econcmlc a c t i v i t i e s also had t h e effect of reducing government revenue. The governments, therefore, hadrecourse to short-term borrowing from the M C B on a l a r g e r s c a l e t h a n i n t h e past. A t t h e end of December 1960 the Board's holding of Treasury bllls amounted t o E4.? m i l l l o n of' which almost 2 .O million each was issued by Kenya and Tanganylka. By February lgGJ, the t o t a l renlalncd roughly t h e same, but the borrowers had changed. The Board*s sho;t-term c l a i m on t h e Government of Tanganylka had risen t o E~.G m i l h o n , It h e l d no Kenya Treasury b i l l s , and I t s short-term claims on the Government of Uganda had r i s e n t o almost E1.7 m i l l i o n , By end June 1961 TreasurJ bj 11s mad2 up only E2,8 m i l l l o n out of a t o t a l f l d u c l a r y i s s u e of ~12.8m l l l l o n , but a t t h e end of 1961 they had risen again t o ~ 6 mlllion. ~ 0 I n lending t o t h e governments the Board a l l o c e t e d t h e various amounts t o d i f f e r e n t governments and It followed t h e practice d leavlng an unused nlargln withln t h e l m l t of the authorized fiduciary issue t o t h e governments for exccptlonul demands and other unforeseen contingencles a s t r c l l as f o r recllscourlts of Government securitles or Treasury b i l l s h e l d by t h e carmerclal banks. It was therefore made a condition t h a t a l l governments would have t o consult w1t;ll t h e Board before issuing bonds or b l U s .

1/ Part of the decreare ,tab due t o the wlthdraml of East African shill Lngs from t h e former l 3 r l t u . h P r o t e c t o l d t e of Soma1 l l a n d i n 1961: EO. 6 m i l l i o n vas Jithclrclwn before June 30, 1961 and EO,2 million in July and August of 1961.

. I .

16

o f pounds)

Table

Sr.

EACB:

Sigh* Liabilities and Currency Reserve Fun?

( I nmilllokrs

Currency outside banks

Currency&/ Total currency held by in banlcs circulation

Deposits bY banlcs

Currency Reserve Fund

June

1957 June 1958 *Tune

June June
JUne M a r . June Sept bec.
I

9.6
0.2

60.7

60.7
58-7

6.9 5.9
6 . 1

60.4

57.3

53.3 56.I .

4.6

5.7

5 . 9
3 . 2 5.2

59.2 61.8
57.8

Mar. June Sspt a Dec. Mar.

3.6 4.8 4.3

4.4
5 . 1

63.0 68.0 69.5

65.5

71.9
75.7

June Bept Dec M a r

. .
.
~

6 . 2 ...
4

~

4 . 1 4. 3

72*3 68.3 75.6 79-8 76.0

Sources:

?worts of t&$,.rst;AE_r~;~Currency Bosrd and data supplied by t h e

EACB authorit ies

Includes currcnly held by c o m e r c i s 1 bankb i n Aden which i D not separately available f o r all data. I t nmounted to CO.6 m r l l u n on June 30 In 1962, 1.963, an2

1964.

- 17

The Board searched for an equitable formula t o be used In the shming of t h a t p a r t of its p r o f i t s t h a t it intended t o d i s t r l b u t e to the member gmernments. It tras thought t h a t , i n theory, each government's proportion should be equal to the amount of currency in circulation i n i t s territory. After the withdrawal of East African shillings frcm the Somali Republic was ccmpleted, t h e Board renewed the e s t m a t e s of currency circulation i n t h e remainmg f i v e member t e r r i t o r i e s . It was f e l t t h a t statistics of issue and redemption by the Board i n each of t h e various countries were not a sufficient guide since trade and capital movements between t h e t e n d tories were allowed freely ~ m n d had taken place on o. large scale * It was therefore found more p r a c t l c a l and politlcallly more acceptable t o adopt a formula whlch gave equal shares t o the three mainland t e r r i t o r l e s . each receiving 28.2 per cent, Zanzibar 3 . 5 per cent, and Aden 12 .O per cent Of t h e Board's p r o f i t , 2 milllon was distributed In 1962 according to this formula (see Table 6 ) The use of t h i s new formula was noL restricted t o the dLstrilution of p r o f i t s , b u t was also used to determine each government ' s share of the fiduciary issue * Thus, the 20.0 million allowed for fiduciary i ssue t o the governments was apportiolled 1n the following \.ray : slightly over E5.6 miUlon each t o Kenya, Uganda and Tsnganyilca; EO. 7 million t o Zanzibar; and E. 4 nlillion t o Aden.
With n vlev t o a c t i w as lender to the banklng system i n a period of scarce liquidity and t o enxtl;le the processing and marketing of crops, the Board, i n November 1960, approached the Secretary of S t a t e f o r permlsslon t o discount and rcdlscount bCLs and other approprmt instruments i s s w d i n connection with themarketing of specifled crops. These new polrem were granted t o the Board, provided t h a t t h i s type of financlng 1Joud.d not exceed E5 million nor increasethetotal fiduciary issue t o more than u 5 . 0rnilllon But ~n 19601'61, rather high ad valorem stamp dutles On crop b l U s i n the constltuent territories operated as a dlsincentlve for t h l s t y p e of fmancing, and no use tras therefore made of ~t until 1961/62 when t h e ccmmerclal banks, f o r the firs', time, turned t o the Board t o obtain refinanring. Such recourse remained, on a inoderate m a l e , not exceedmg EO.8 million at, any one tlme during t h a t period (see Table 7 ) , for two mdln reasons : there was a sharp drop L n cotton p o d u c t i o n i A l Uganda, and t h e Bmrd observed the hlghest standards in the types of paper used I n this new form of lendlng t o t h e banklnE oyLltern.

It 1s worth mentioning t h a t t h e Board declded not t o apply any t e r n t o n a l d i v i s l o n of i t s crop f l n a n c l n g f n c l l l t y . It was f e l t t h L i t , wath d bankln@ system where most commercial banks operate In all constituent t c r r l t o r l e s , I t vas m p o r t a n t LO influence t h e over-all l ~ p ~ d i p t oy sition of the corrmercial banks rather t h a n t h a t of those hranches of t h e banks located 111 the country whose produce Wds, a t any p c w t l c u l n r momenl, b e i n g harvested and processed, Lmits [ere, ,lowever, placed on the lrldiVidLmL conunercial banks,
1/ Coffee, tea, c o t t o n , sisal, cloves and. pyrethrum. It was made c l e u this l i s t could be expanded t o include other crGps, i f needed,

tha;

- 18
Table 6 .
a

E A C B : DistrlbutAons to Governmento Out of Board's Tncomeg

(In thousands of pounds)

Year ending June 30

British
Kenya

Total
for a11

Uganda

Tnnganyika Zanzlbar

Aden

Somaliland
"

countries
130.0

50.6
44.2

5.3

7.7
10.8
17.1
29.0

2.0

1 . 5 0 0
250.0

66.7
151.3

3.4

5 a3
6.4

TOO. 0
500.0
503.0

130 5
140.3

18.3

7.1
10.9

215.4

27.3
45.5

750.0
1,250.0
1,250.0

342

.2

17.5
22.5

345 -6
347.8 347.6

45.4

43.3
$11

24.6

1,250.0
1,250.0
2,000.0
2,000.0

.o

16.0
"

563.3

70.0

563.3
"

70 .o

"

633.7

78 - 7
511 5

"

2,250.0

115.4

14,050.00

Sources:

Reports of the East AfrLcan Currency Board. * .15

"- " -

1;/ The distribution i s for the years indicated, but payment effected m t h e folloving ycar.

usually

Table 7 .

EACB:

Crop Financlne

(In thousands of pomds)

-

1963
Made available

1961
Macle available c l u i n g month
O u t s t anding

at end of month

1962 Nade Outstanding available at end of month during month

1964
a t end of month
1,200
Made available c l u i n g month
Out st andlng

O u t standmg

during month
~~

a t end of month

Jan.
Feb

I,650
"

. .
" "

1,000
"

Mar.
Apr
May
J U t l !

1,650
200
I
IU

"

"

"

I
" "

July

"

"

Aug

.
"

450

450
226
226
200
200

Sept

63
"

Oct ,
Nov ,
Dcc

5 0

226

.
Amounts not lnade available a

750

450

Source:

Re'ports of the East African CurrenLy Board, and data sugplled by t h e M C B u u t h o n t i e s .

To make borroalng by t h e commercicl banks f l m the central i n s t i tution more a t t r a c t i v e , the Board, In May 1962, lowered its discount rate forbcrop finance bills fram 7 per cent to 5 1/2 per cent (see Table 8) I t justified thl action by indicating that it d i d not wish to impose a "penalty rate" 1 for crop finance. At the sane time the Board made it clear that I t would see t h a t the funds obtained fram the Board were used by the commercial banks for t h e financlng of craps, and that the banks considered the Board as a lender of l a s t resort. Simultaneously with the Board, the c m e r c i a l banks loweled theix minimum overdraft rate from 8 per cent (to which it had been raised in October 1560) t o 7 per cent.

T h e Ward's rediscount the gcwernments remained at The l a t t e r was 1/8 per cent during the period accordlng rediscounted Treasury b l l l s

rate for Treasury bills or similar b i l l s of 1/2 per cent above the current terrder rate. below the London Treagury b i l l rate and moved to t h e fluctuatlons i n t h a t rate. In 1961/62
reached E350,000.

In May 1362, the Board made the first change in its exchange commissions since 1946. For 16 years the rates for both issues and redemptions of &st African shillings against sterling had remained a t 1/4 per cent, The Board now set its charge for buying sterling at l/8 per cent and i t s charge for selling sterling at 3/8 per cent. Its aim was to create scme incentive for traders to return t h e i r e x p o r t proceeds and to encourage the Inflow of private investment capital from abroad. The Board a l s o made it known that it would henceforth reserve the r i g h t for itself to deal in the exchange market. The commercial banks followed the Board i n reducing t h e i r charges to the publlc.
The considerations that had caused the Board to change its commissions and to favor inward 1-emittances dld not, however, apply t o Aden. There the exchange market had remained broadly in balance, and the requirements of s t e r l i n g were matched by sufficlent demand f o r East Afrlcan s h i l h n g s . It was therefore not necessary to introduce any changes and the equal u s u e and redemption cornmlssions of 1/4 per cent, respectively, were kept in force. However, to avoid undesirable arbitrage movemenks, the Board imposed a 1/8 per cent charge on transfers from East Africl to Aden. Such transfers, like any other t r a n s f e r s wlthln the currency area, had previously been free of charge.

4.

Operations since 1962

After the rnlddle of 1962 economic c o n d l t l o n s in East Africa unproved. This was partly due t o more favorable weather, but there were also s i g n s that a general revival of confidence in East Afrlca's econcxnfc potentlal hAd occurred. Investment showed some increase, and h i g h e r commodity
~~ ~ ~

1/ To the e x t e n t that t h e m m i r n u m overdraft r a t e charged by the corrmerclal banks had remained u t 8 per c e n t since the f a U of 1960, t h e Doard's rate of 7 per cent had never been a t r u e penalty rate.

- 21
Table 8.

E A C B : Rates o f Interest and of Exchange Conrmissions

(In per cent)

Year

Exchange commissions buying selling rat e rate

Rediscount rate for Treasury b i l l s

Rediscount and advance rate for crop financing

"

1955 June
1960 June

"

"

"

1961 June
1962 June

"

1/2 per cent above the local tender rates

a

112

5 1/2
5 1/2

ls64 Nov,

***

Sources: Reports of t h e East Afrxan Currency Board and data supplied by the EnCB authorltles,

r/

The exchange coLJ?ic;iolls

in

connection with t l z e buying and sclllng rates

i n Aden remalned at 1/4 pcr cent, ~espect~vely, but a charge of' t/8 per cent was applied f o r transfers from East Africa to Aden.

- 22

prices led to larger receipts frcm abroad. Total currency in circulation showed a steady rise of 13 per cent between June 1962 and June 1963 and of 4 per cent in the follcwing year (see Table 5 ) . By January 1965, it rehched an all-time h i g h of E8O,5 miLion-before a seasonal decline s e t in.

In the general setting of a reviving economy, and encouraged by its continued strong position even throughout, the years when the pace of economic development had slackened, the Board decided on f'urther increases in i t s fiduciary issue-first in December 1962 for crop financing from E5 million to E10 million, and then in May 1963 for governments from E 2 0 m i l l i o n to E25 million and again in the fall of 3964 to E35 m i l l i e n , bringing the moximrm limit fort h e total fiduciary .Issue to E45 m1Wion. If fill use were to be made of the new powers, the fiduciary issue tmuld mmant to over SO per cent of currency in circulation. In f a c t , however, the t o t a l fiduciary isme at the end of December 1g64 amounted to E25.2 million, or 36 per cent of t o t & currency in circulation, whereas sterling assets (at nominal value) covered 81 per cent of the currency issue.
The Board's lending to the governments since the middle of 1962 has shom fluctuetiona in t h e governments' need for short-term financt! (see Table 4). Long-term borrowiw did not increase over Lhis period, standing at E9.7 million on December 31, 1964. The B a r d ' s holdinss of Treasury b i l l s are usually higher at t h e end of the year when the commercial banks are l e s s l i a u i d because their funds are employed i n connection with marketing of crops. Toward the middle of the year, the Bcmrd's Treasury b i l l holdings decline, Far example, Treasury b i l l s held by the n a r d declined from E7.4 million at the end of 1963 t o C3.8 million by t h e middle of the year but then increased again to El2.3 million by December 31, 1964.
The rlse was especially sharp In the second h a l f of 1964 because of large borrowings by the Governments of Uganda and Tanganyika. The Government of Kenya had not found it necessary t o issue Treasury bills since early 1962 because it was able to borrow from companies and other S O w C e S directly, a sign of 3 relative abundance of l i q u i d funds in Nairobi. Tanganyika, on the other httnd, had borrowed up to the lhit by flueust 1964 and thus had to approach the Bomd fur permission to borrow beyond iks apportioned share. After c o n s u l t n t i o n and careful consideratlon, the Board permitted t h e Government of TaGzania to exceed Its a l l o t m e n t oi' the fiduciary issue t o governments by applying the omount above Tsnganyika's share againct the unused portions 01' Kenya and Aden. However, the rise In t h e maximum limit of the flduciary issue to governments in October 1964 frGm E25 m i l l i o n to E35 m l l h o n brought TanzaniH back w i t l u l *he permisslb3.e limit and even l e f t it with an urlused margm. The Board continued to distribute y r o f ~ t s to the gcverments in accordance wtth i t s formula. The t o t a l mount dlstributed In 1963/64 was raised to E2,250,000. In additlion, the Board decided that it ~ O U l c l c o n t r i b u t e to the s t r e n g l , l ~ e n l n of ~ the finoncia1 sybtem i n East Africa by providing to the East African g u v c l r r n \ e r l t s the f 1 n ~ n t - ~ a resou~ccs l needed t o sub~cribeto t h e Bretton Woocls i n s t i t u t i o n c . On August 23, 1962

. .. .
i

'

- .
23 it allocated for t h i s purpose E l . l million to enable the Government of Tanganyika t o discharge its obligations. Cn the same day, the Board s e t
aside in a t r u s t fund comparable amounts for the other governments so that they would be a b l e , i n t h e f u t u r e , t o pay their subscriptions to the I M F ' , the IBRD, and i t s a f f i l i a t e s . When Uganda and Kenya became members of the IMF and the IBRD i n September 1963 and February 1964, respectively, the EACB, out of the trust fund established for t h i s purpose, made available t o t h e governments E l . 1 million each for the payment of t h e i r subscriptions. A second t r u s t fund was established t o provide f o r t h e subscription8 by the Board's member governments t o t h e African Development Bank. The Board further strengthened i t s relations with the commercial banks i n t h r e e main areas: the Board's crop financing facilities, rediccounts of Treasury b i , U s f o r t h e banks, and the opr--&ions of clearing settlement accounts. Crop financing increased and reached a peak i n January 1963 During the following crop season i n 1963/64 funds made available by the EACB under the crop financing scheme were scanewhat lower but more evenly spread Over the crop season (see Table 7). To f a c i l i t a t e such operations the Boardwas now v i l l i n g t o accept promissory notes of the banks' custonlers as security for advances t o t h e banksand, for discounts, the banks were allowed t o tender their own acceptance when custcmary b i l l s of exchange were not available, The Board continued t o urge t h e governments t o standardize exicting ad valorem stamp duties on ccmmercial b i l l s .

The Board changed t h e r a t e it charged f o r rediscounts and advances i n connection w i t h crop financing i n November 1964 frcm 5 1/2 per cent t o 5 percent(seeTable 8). It i s s i g n i f i c a n t t h a t t h e Board made t h i s decision a t a time when rates weremoving i n the opposite direction i n London. The effect of higher rates i n London and lotrer rates i n Nairobi were soon apparent. Lendin8 by t h e Board t o banks f o r crop financing rose from E0.6 m i l l i o n a t t h e end of November 1964 t o E3.2 million a month l a t e r . Buteven t h i s amount; i s only a fraction of the E10 million which the Board i s authorized by its regulations to lend i n connection w i t h crop financing. The f a c t that no greater use has been made by t h e c m e r c i a l banks of t h i s f a c i l i t y i s partly due to deliberate action by the Board t o encourage short-term borrowing frcm abroad during the main crop seusons. Treasury b i l l s rediscounted by the Doard f o r t h e commercial banks fiuctuated between E3OO,OoO and EGo0,OW pr?r annum during the period under review. A l l these operations were under.tslten f o r the benefit of banks operating i n Uganda. Relative to the total fiduciary issue, the mWtS of rediscounted Treasury b i l l s were rather small, but the Board attached considerable importance t o i t s readiness and Elbility t o a c t a s lender of l a s t r e s o r t i n t h i s m y . The rate at which t h e BOFIYJ.stood r v a d y to rediscount Treawry b i l l s rema,ined unchanged u t 1/2 per cent above the tender rates i n the constituent territories.

During 1962-64 t h e number of bank customers of the B o a r d increased

and the operations of t h e banks' clearing settlement accounts with the

h a r d expanded. T h e Board had made it known that no commercial bank with an office in one of t h e capitals of the three mainland t e r r i t o r i e s w o u l d obtain any service frm the Board other than that available to the general public unless it maintained an account with the Board. T h e EACB o f f i c m l s thought t h a t , for the sake of more e f f i c i e n t banking operations, some comnercial banks could have made more intensive use of their accounts with t h e Board.

The Board saw no need to alter its general commissions on foreign exchange operatiom when a temporary spurt i n outflaw of funds occurred i n early 1964 in connection w i t h political i n c i d e n t s . Up until November 1964 the charges remained unchanged at 1/8 per cent f o r buylng s t e r l i n g and at 3/8 per c e n t for s e l l i n g s t e r l i n g . Throughout t h e whole period, the Doard, at times, dealt with the banks at smaller charges with +,he dual aim of encouraging temporary short-term borrowing by the banks frcm abroad to finance crop movements, and of making dealings In the unofficial "campensation market" less a t t r a c t i v e . By charging lower rates t o the banks on certain operations, they, i n turn, were able to reduce t h e i r charges to their customers for transactions amounting to E100,000 or more. This increased the a m a u n t of exchange transactions handled through the banking system and reduced "compensation arrangements" On November 25, 1964 the Board increased i t s commisslon on selling sterling from 3/8 per cent t o 1/2 per cent. As the buying commission remained at l/8 per cent, the spread between the two rates was further widened. The change was undertaken i n response to the r a i s l n g of the bank rate i n London, from 5 per cent to 7 per cent. The officials of the Ebard f e l t that there was need t o reduce the a t t r a c t i o n of higher r a t e s in London in order to keep liquid funds In East Africa.

Over the years the Board has endeavored t o improve Its currency services through t n e establishment of new currency subcentsrs I n various parts of East Africa and on the islands of 7anzibar and Pemba and thrr)uGh the conclusion of new currency agency arrangements with ccmmercial banks. Under these arrangements t h e banks were authorized to hold c o i n s (not Notes) on behalf of the Board. These measures eliminated unnecessary shipments of corns to t n d f r m Nalrobl and thus held down some of the Board's costs.
During 1g64 the Board u s e d i t s influence t o keep the tender rates for Treasury b l l l s issued i n the East African capitals frcm f a l l o w m g too closely the rates In London. The Board's a l m was to allow day to day chenges to be r e h t e d to those In the London market, but it did n o t wish any automatic l m k by w h x h successive sharp rises i n t h e London rates as a result of changes in the bank rate were followed in EHst Africa. This policy l e d to p a r a l l e l moves of the rates in London and Ea s t Africa but st an increasingly wide spread. The maxlruum local r a t e In early 1965 was 4.40 per cent.

Table 9 shows the composition of t h e Board's a8se is While the praportjon of sterling assets out of t o t a l investments varied around 84 per cent during the l a s t four yeam, the part kept i n sterling Treasuv b i l l s and sterling securities maturing i n l e s s than f i v e years grew frcn 79 per cent i n 1961 t o 95 per cent i n 1964. m e maturities of most of the East African securities held by the Board stretch over 8 somewhat longer period than the sterling investments, It i s the Board's intent i o n also to improve the liquidity structure of its l o c a l investments.

Teble 9.

U C B :

Composition and Degree of Liquidity of Assets

(In millions

o f pounds)

June 30

Cash, R-easwy b i l l s , crop finance, advances

'

Securities maturing i n years o r l e s s

Securities maturing i n more then 5 years and up t o 10 y e a r s

Securities maturing i n more than 1 0 years

Totel

Sterling assets (percentage) %st African a s s e t s krcentage) Total (percentage)

Sterling assets (percentege) E a s t African e s s e t s (percentcge ) Total (percentage)

Sterling assets (percentage) East African a s s e t s (percentage) Total (percentage)

Sterling assets (percentage) Eest African a s s e t s (percentage) Total (perccntege) Sources: Reports of t h e East African Currency Boe.rd.

. .

111. East Africa's Balance of Paymentsr!

"

" " " -

1.

L " .

Over-all balance of payments develaEents

" " "

The pattern of the East African balance of payments has changed subs t a n t i a l l y cver the years since 1956 f o r which official balance of payments eotimatea = available (see Table 10). A large d e f i c i t during the first of these years on t h e balance of goods and services has gradually been reduced and f o r 1963 and 1964 was replaced by o. surplus, "his development was largely accounted f o r by t r a d e and took place in spite of the f a c t that the terms of trade for East Africa showed an unfavorable trend from 1956 to 1960 and even a f t e r some improvement i n recent years were still, in 1963, about 10 per cent below the 1956 l e v e l .
Over the same period, Kenya has received increasing amounts of official grants which fluctuated between E3 million and E7 million i n 1956-60 and then Jumped t o a level of El2-23 million for t h e following years. On the other hand, recorded private c a p i t a l inflow went down from E21 million i n 1960 t o only E4 million i n 1961 and r2 m i l l i o n i n 1962, and it has, from 1960 onward, been much more t h a n offset by a net expenditure of exchange caused by unidentified transactjons, which are believed t o r t f l e c t mainly outflow of private i n d i v i d u a l s ' c a p i t a l . O f f i c i a l c a p i t a l Inflow has been varying greatly from year to yeur,but without showing any p a r t i c u l a r trend*

The balance of the above-n~entioneditems together !see Group F of Table 10) shows large fluctuations from year t o year between a maximum d e f i c i t of 1x6 million in 1960, when t h e p r i v a t e c a p i t a l outflow 'was particularly large, and a maximum surplus af ~6 million in the following year, vher: t h e caFital outflow had declined and, at t h e same time, % s t Africa received substantial amounts of official grants, For the whole period 1956-64, however, d e f i c i t s exceeded surpluscs by E25 nullion. The strain af this net outflow of foreign exchange is t o k e n e n t i r e l y by the comiercial banks, whose balances w i t h banks abroad ( i . e . , largely thetr head o f f i c e s in London) chenged from net claims of E17 m i l l i o n Q t t h e end of' 1955 to net debts of E9 million at t h e end of 1964. The foreign reserves held by the East African Currency Board have, i n r e a l i t y , served only t o a negligible extent to e w e t h e monetary s t r a i n on t h e economy: the amount of t h e reserves allocable to these t h r e e countries W 0 6 E55 m i l l i o n a t t h e end of 1955 and E52 million at the end of 1964.
The l e v e l of official reb:rves was maintained i n spite of the measures which t h e Board has taken, beginnine, i n 1955, t o allow for issuing currenc:, on t h e security of Treasury b i l l s dnd other securities Issued by the melnber Governments, as well os on the t r a d i t i o n a l b a s i s of foreign exchange aSSetSThe three countries' shares of these f i d u c i e r y lending powers ha-Je gradually itlcreased rom the original amount of E8-9 million in 1955 t o tne present E30 m i l l i o n , and t h e outGtandinG m o u n t s of drawings have risen almost continuously from year t o y e w und were, a t t h e end of '364, E21 ndllion. "-~-fntiiis-section-the Tanganyika and Uganda

.term East &ica

- is uied t o cover Kenya,

" "

"_

" I " "

Table 10, Zast Africa: Balance of Payments Surtrwry, 1956-631/

( In millions of pounds)

B Transfer Payrcents

Private transfers Official grat.t a

C, P r i v a t e IIonmonetary c a p i t a l Long-term capital Short-term capital D. Unidentified Transactions

E. Official ITomonetary Capital

21,5
21,6 -0.1

15.6 8.2 14,8

0.8

8.2 -

21.0 20.5

4.4 -

8.1
1.1

9 43 -1.1

3.9
OD5

2.3 -

16.9
1.3

185
0.8

15.6

0.5

m I u I

16.8
13.0
3 6

Long-term capital Short-tcrm cbpltal

F. T o t a l ( A through E)

11.3 12.5 14.2 4.5

-2.9
8.0

3.9 -3.9

17.6 16.5
1 . 1

14,4 14.7
-0.3

19,1 10.1 12.9 13.2

509

-2.8

Souzce:
Etafi,

Estimates by the East; A f r l c m Statistlcal Department, to some cxtcnt adjucted and supplemented by the Fund

in

110 s i g n indicates c r e d i t (decrease a88 e t a o r decrease in l . ~ a b I l i t i e s ) ,

in a s s e t ~ tor increase In l i a b i l i l l e a ) ; minus sign indicates d e b l t (increase

Trade statistics data adJusted for valuation and coverage#

At the same time, t h e commercial banks had drawn E3 million under thecrop financin6, scheme, which the Currency Board introduced i n 1961. The p r a c t i c a l l y unchanged level of r e s e r v e s r e f l e c t s , however, t h e f a c t that t h i s fiduciary lending of E24 millim has l i t t l e more than equaled the concurrent substantial increase in the currency circulation, which would otherwise have required a corresponding accumulation of statutory cover I n the form of foreign a s s e t s . The t o t a l amount of currency circulated by the Board increased from E60 million AS of June 30, 1955 t o E80 million a t the end of 1964, of which, on the basis of' t h e distribution implied i . 1 the profit-shsring formula, E51- million aK;d E67 million, respectively, can be estimated t o have been c i r c u l a t i n g i n t h e three countries.
O f t h e t o t a l amount of E52 million, which is estimated as of the end of 1964 t o be t h e three countries' share of the Currency Board's foreign assets, E9 million represents the unutilized part of t h e Government's drawing rights under the Board's fiduciary powers. These unutilized drawing rights, of which E6 million belonss t o Kenya, E2 m i l l i o n t o Tangunyika, and El millLon t o Uganda, may be considered close to the equivalent of 8 fdrei~11 exchange reserve a t the free disposal of the three individual Governments. There is a f u r t h e r amount of E7 m i l l i o n i n t h e form of t h e u n u t i l i z e d part of the E10 million which can be used by the Currency Board for crop

f i n a n c i n c throughthe commercial. banks. I n a d d i t i o n t o these amounts of available exchange reserves, there remains E36 million of foreign a s s e t s i n the Currency Board, of whlch the maJor part serves as s t a t u t o r y cover for the currency circulption; vhile these belong to the three Governments i n common, they can be mobilized t o provide exchcnge reserves o r , more generally, as an instrument of monetary policy only throush a new policy decision by the Currency Board.

2.

" " " " " "

Details on t h e balance of payments a. Merchandise trmmactions

" " " " " " " I c l

" "

The East Al'rLcan balance of trade shoved s u b e t a n t i u l d e f i c i t s i n 1936 and 1957, was a l s o t h e caGe i n previous years; but this was changed abruptly i n t o a s t a t e of approximate equilibrium or minor surpluses In the followmg five years, and i n 1963 uncl 1964 there were mrpluses of E22 mill i o n and 35 rnilliorl,respectively. These remarkable developments on t h e t r a d e balance, which a r e c l o s e l y i n t e r r e l a t e d w i t h concurrent developments for other foreign transactions (in particular c a p i t a l flows) and f o r t h e domestic economy, have resulted from an i n c r e a s e i n export v a l t e s from Ell8 million i n 1956 t o E187 million i n 1964, or by neurly GO per cent, and a much smallar r i s e in import values, namely, from E134 m i l l i o n i n 13>6 t o E152 million in 1964 ( 1 3 per c e n t ) . The quantity of exports hue, been inc~eesingalmost continuously from jear t o year, interrupted only by a decline i n 1961.due t o t h e droughtand f l o o d disaster, und was, for 1363, almost 50 percent h i d u x than f o r 1956 ( s e e Table 11). A t t h e same time, however, export p r i c e s showed an unf'a-doruble trend up t o 1362, after which a suustantial improvetncnt took place. These trends f o r export quantities ond prices r e f l e c t , t o u g r e a t extent, developments for t h c four major exports, coffee, cotton, s i s a l , and tea, which dccounted i n 1963 for about 70 per cent of total, domestic exports (see Table 12)

- 30
Table 11. East Africa: 'hade Indices

(1954 = 100)
1954
Exports from East Africa

1956

1957

1958

1959

1960

1961

1962

1963

.-

-.

Quantity
Price
Value

1CO
100

148
81
120

1co

Imports to E86t Africa

Quantity Price
Value

100
100
100

103
101 104

1/ Terms of Trade-

East Africa

100

80

Of which:
Kenya
Tanpnyika
100 100
DO

85
80

Uganda
"

100

".

-"

"_

"

"

"

"_

"

Source: East African Statistical Department, September 1964.

Economic and :tat.ist~r sl Revlcw.

" " "

1/

The export p r i c e index as a percentage of the mport p r x e index,

Table 12. East Africa:

Domestic Exports of Principal Commodities

"

(In m i l l i o n s of pO~t1d8)

Coffee, not roasted Cotton, raw Sisal fiber and raw Tea Diamonds Meat and m a t preparations Hides and skins, e t c .
Copper and alloya, unwou&t Oilseeds, nuts and kernels Animal feeding stuffs Pyrethrum extract Pyrethrum flowers Cashew nuts Sodium carbonate Gold Wattle bzrk extract Beans, peas and pulses Wood and timber Butter, including &ee A11 other commodities

34.6

45.0

24.6
20.1

25.5
30.2

7.0

4.6 3.8 4.7 ' *1 4.5 2.7

2.0 1.0

9.3 4.9 4.6

4.0 4 .4 2.0

3.9

3.1 0.5
2.3 1.2 1.4 1.0 2.L 0.5 0.8 12.2

2.4 3 1.3
1 8

1.1 1.1
0.9

131.6

0.7 9.1

150.c/
" " " " " " " " "

T o t a l domestic export8

Sources: East Afrxan Slatistical Department, Economlc and Statistical Review, and EACSO, Trade and Revenue ReJort fGr Kenya, Tanrr,anyika and Uganda.
" " I " -

"-

The developments for these commodities f r m 1963 to 1964 were, on the average, favorable with respect t o both quantity and prices, The volume indicea for coffee and cotton were higher bd 11 per cent and 64 per cent, respectively, while tea ehowed an increase of 8 per cent and sisal was p r a c t i c a l l y unchanged. Average export prices for coffee ro6e by more than 50 per cent between the two years, while there was a decline for sisal of 3 per cent end for tea of 5 per cent, and cotton prices were R b n 0 6 t unchanged. This seems t o Indicate t h a t the o v e r = a l l export indices f o r 1964, which are not y e t available, will show s u b s t a n t i a l increases both for quantity and prices, and t h a t the price iadex w i l l probably exceed the 1956 level,

After an Increase of 5-6 per cent over 1356, the quantity of Imports reached a high in 1957, 16 per cent above the 1954 level, but dropped almost back t o that level far the following two years, &ad after a subsequent increase the quantity has still, for the years 1961-63, been only about the same as I n 1957. Import prices over most of the period have shown rather moderate fluctuations around the 1956 l e v e l , but a subotantiol rise took place i n 1963.
The developments in export and import prices brought the terms of t r a d e 1960, 14 per cent under 1956, and e \ e n a f t e r come rccovcr, they were s t i l l , i n the years 1961-63, 9-10 per cent lower than in 1956. After the favorable developments in export p r i c e s from 1963 to 1964, the terms of trade have probably inproved somewhat, despite some rise i n average impart prices.
down to a low i n

Besides coffee, cotton, s i s a l , and tea, a great variety of other commodities are exported, among which t h e most important are diurnonds, meat, hides and skins, oilseeds and nuts, copper, and alloys as specified i n Table 12. A substantial part of imports ( s e e TaoEe 13) consists of trausport equipment ( 1 3 per c e n t ) , mnchlnery and appliunccs (14 per c e n t ) , petroleum products ( 3 per c e n t ) , c o t t o n fabrlcs ( 6 per c e n t ) , :and i r o n and steel manufactures ( 5 per cent). The relnalnder is spread over d m d e varie ty of minor items.
The d i r e c t i o n of Enst Africs's i'orelzn trade has chanCed substantially between 1956 and 1963, as shown in Table 14. The share of ex.rJortn going t o the sterling are8 hds decreased from 49 t o 11.3 per c e n t , a n d that t o the EEC countries from 25 t o 20 per cent, whlle there hac been an incrcuse f'ol the UnitedS t a t e s and Canada from 12 t o 1 5 per c e n t , and for "other countries" including Malnland China, from 1 3 . t o 18 per cent of t o t a l exports. With regard to imports, t h e share received from the s t e r l i n c drea has a l s o shown a l a r g e d e c l i n e , namely, fro11161 per c e n t i y l 1956 to 145 per c e n t in 1963, while the shore provided by all the o t h e r ' s c l e ~ t e d areas hos incrcdtec-, particularly for "other countrics", from 11 t o 23 per cent, larcely clue to a rise i n imports from Japan dnd Iran.

..
b

- 33
Table 13. East Africa:

Principal Import8

( I n millions of pounds)

Transport equipment
Passenger vehicle6 and chassis Buses, truclte, lorries, etc. Railway rollin8 stock Aircraft

I;:[

2.2) (0.1)
(5.2)

Other
Machinery other t eh le ac nt r i c Tractors, including agricultural Agriculturalmachinery, etc, Other Petroleum products Cas, d i e s e l and other f u e l O i l 6 Motor spirit Other Cotton fabrics (piece goods) I r o n and s t e e l manufactures E l e c t r i c machinery, apparatus, e t c . Paper, paperboard and manufactures Clothing, except f u r clothing Rubber tires and tubes Medicinal and pharmaceuticalproducts Radio and t e l e v i s i o n sets Scientific, medical, etc., instruments J u t e bags and sacks Blankets and t r a v e l l i n g ruas Printed Hand t o o l s of metal Milk and cream, tinned Sugpr, refined Textile yarn and thread Insecticides, fungicides, etc. F e r t i l i z e r s , man' factured Chemicalf3, inorgardc and organic Tea Petroleum, crude and partly reflned Alcohohc beverages Sanitary, plumblw, c t c . , materials Paints, varnishes, dyestuffs, c t c , Other

14.7
(1.1) (1.2) (12.4)

4.3)

7-5
0 95

5.3
2.4
2.2 2.1

14 0.4 0.7 1.1

0. B 1.2 0.7
0.7

1.3

matter

2.8 0.4
0.

0.6

"

"

1.0 1.2

modities

0.9 41.0

Total lmports
Revlew, and

133.8

SoUrC&: East African S t a t i s t i c a l Department,

Economic and Statistical Luarterly""-""""""" Economic and S t a t i s t i c a l B u l r e t i n .

"-"

"_

Table 14.

East AfYics

Compoaition of E x p o r t d a n d Imports by Belectad Arsu m n dCOUitriO8 ( m t e i n millions of pounds)

Sterling area
United Kingdom Auetralia Bahrein Islande Houg Kong India Rhodesia and Nyrsdand &uth Aftlca Zanzibar Other

46.9
2.0 27

1.3

6.9

0. e

0.2

2.9

39 7

hllar a r e a
Ce~ladaand

7 . 2
Newfoundland

Unrted S t a t e s
EEC countries
Belgium-Luxembourg

6.7

0.5

25.1
2.2

FrBJlce Germany, Federal Republic of Italy lietherlmds

4.5 9.9 4 5 4.0

Kiudom)

EFTA countries (cxcluding Unitcd

Denmark

4 8
0.0

Swcden Other
Other countries
Congo (Leopoldville) Rwanda and Durundi

1.6
2.4

0 6
0.1
"

Sudan Japan Mainland China Iran Other

19 0 0.5 92 4.2

Unallocated
Total

Q
145 0
Department, Ecorlomic m d S t a t i s t i c a l Review.
a

Source:

East A f r i c a nS t a t i s t i c a l

Including re-exports.

- 35 b. ~mactions In services

The balance of 60me selected years period under review A m j o r part of the

foreign transactions in services, of which detailn for are shown In Table 15, has been fluctuating over the between d e f i c i t s of E l l mllllon and E10 million. d e f i c i t s ie accounted for by t h e excess of investment income paymente to nonreslbnts over thoee recej-d from abroad, for 1963 amounting to E l 9 million BB compared with E6 d Aon in 1956. The general trend i n t h i s account over the period was roughry constant receipts but rising payments, the l a t t e r 8 8 a natural result of the increase in foreign debts and foreign Investments in East Africa. Receipts from H.M. Forces stood at 3-6million in 1956, but were more than offset by payments of E7 million to the W a r Department and others i n connection with the cver[l;ency* The U.K. Government undertook t o bear the whole of the recurrent cost of the East African Land Forces from mid-1960, and as a result, t h i s component showed net credits for 1962 and 1 . 9 6 3 of Eg-lo mlllion. For both Insurance and miscellaneous oervlces, there have been Increasing net payments abroad, while payments and receipts on travel and transportation accounts have largely been In equilibrium, The credit for nomonetary gold of E l - 2 m i l l i o n is mostly the r e s u l t or' production I n Tanganyika.
c.
" " d "

Transfer payments

Private transfer payments include fundo received by missions and churches from overseas, personal remittances of East Afrlcun residents, and the value of money and personal belongings brought into, or taken out of the area by migrants. The Lolance of this account wae s l i g h t l y positive from 1947-61, but has showed au Increasing deficit in recent yeare, amounting t o E7 inillion i n 1963, yresumably resultina mainly from a rise in emipants' transfers.

Official grants from abroad, for whlcn detnilo arc shown i n Table 16, were fluctuating i n the yeom l956-60 bctwecn E3 ruillion and 3' million, but rose to a level of El2-23 million f o r the years 1361-63. The grant6 have cone l a r g e l y from t h e U.K. Government i n one fora or another. A n opprsciable part of the grants i n lecent y e u r o wos a result of the Overseas Service Aid Scheme (OSAS), under which the U . K . Government contributes t o the salaries of expatriate o f f i c e r s serving i n t h e Bast African countries.
d.
" " "

Privatenornonetag

"

cacital

"

-@

The recorded net inf'lov of c a p i t a l t o the prlvdte s e c t o r has fluctuated between 3 . 2 3 million and E22 million a year apart from the years 1961 and 1362, when i t amounted t o only a few million pounds. Tn 1-956, East African cornpaniee received larye foreign loans and i t w&s mainly due t o the reduced volume of new loans i n 1957 and 1958 that there was a decline i n the net c a p i t a l inflow i n those years, aGsisted i n l95d b y the fact that, East African companies a1)preciably increased t h e i r holdings of foreign securities Rnd other overseas lond-term assets, I n 1959 new loants to compunies continued t o f a l l , but t h i s was more than oil'set by thc sale of foreign securities and other assets by the Statuto1y Boards.

- 36
Table

1 5 . East

Africa:

Foreign Tranmctims in Serdoee

(In millions .of pounds)

" . . " " .

".-

" " " "

Sources: East African Statietical Department, The Balance of Paymenta Of East Africa) and data provided d i r e c t l y by the %st African Statistical Dopartment.

1/ Consists of central. governments, the various EACSO departments, the E,A. Cukency Board, and the Post Office Savings Benks. 2/ Including l o c a l authorities, Sttrtutory Boards and commercial banks.

Table 16. East Africa: Official Foreign Gracte

(In millions of pounds)

Kenya Government

Qnergency" "Wnnerton Plan" U.K. Exchequer ( O . S . A . S . ) Colonial Development m d llelf a r e fnternat ional Cooperation Admin-

istration
Tanganyika Government

Colonial Development and llelfare U.K. Exchequer (O.S.A.S. )

Uganda Government

Colonial Development and IJelf are

U.K. Exchequer (O.S.A.S.)

mcso

( M C )

Direct grants (U.K. ) Colonial Development and llelfare U . K . Exchequer (O.S.A.S.)

Total
Sources: East African Statistical Department, The Balance of Payments of East Africa; and data provided directly by the E.A. Statistical Department.

- 30 The big rise i n overseas investment in East Africa in 1960 was 19rgely due t o a n e t purchase by nonresidents of E4 m i l l i o n worth of l o c a l e q u i t y c a p i t a l and to loans t o l o c a l companies of nearly CG million. I n 1961, however, there was a r a d i c a l change, presumably r e l a t e d l a r g e l y to p o l i t i c a l u n c e r t a i n t y and net investment fell from t h e E21 m i l l i o n of 1960 t o E4-5 million i n 1961 and E2 m i l l i o n in 1962. This r e f l e c t e d a decyease i n net loans to East African companies, i n investment by branches and insurance companies, and i n the value of undistributed profits. I n 1963, the net capital inflow r o s e again sharply t o El7 million.
Outstanding amounts of the private sector's foreign l i a b i l i t i e s and 17. At the end of 1961, t o t a l l i a b i l i t i e s amounted to E134 m i l l i o n and t o t a l a s s e t s to E35 million, r e s u l t i n g i n net l i a b i l i t i e e Of E99 m i l l i o n . These data, however, do not cover privateindividuals' foreign l i a b i l i t i e s and assets. I t should further be noted t h a t the changes from year t o year ic the outstanding amounts differ w i d e l y from t h e corres- ' ponding balance of payments entries, presumably due t o v a l u a t i o n and coverage adJustment s .
a s s e t s are shown in Table
e.

Unidentified t r a n s a c t i o n s
"

The label " u n i d e n t i f i e d t r a n o a c t l o n s " i s here used for the balancing item, whictA r e p r e s e n t s a net pf a l l errors and omissions i n the e s t i m a t e s of s p e c i f i e d accounts. I n the years 1956-59, t h i s item f l u c t u a t e d between 8 debit of E15 million and a credit of El million, but i n 1960 it shot up t o 8 d e b i t of E48 million, and it was of an extraordinary n~ugnltudea l s o i n thc following years. It seems most likely that the very larGe n e t errors and omissions in the East Afrlcan balance of payments from 1960 onward r e f l e c t mainly an unrecorded outflow of private individuals' c a p i t a l .
f.
" " "

O f f i c i a l nonmonetary c 3 E i t a l
" " " "

"-

The public sector's long-term c a p i t a l t r a n s c c t i o n s of which some d e t a i l s are Gxven in Table 18 hovc shown a net inflow f l u c t u a t a n g in 1356 and 1957 and In 1960-63 between E13 m i l l i o n and E16 n ~ i l l i o n ,b u t with a drop to about E4 m i l l i o n in each of t h e years 1958 and 1953. The inflow i n t h e f i r s t two years i n c l u d e d large amounts of l o a n s raised on the London market and, e s p e c i a l l y in 1956, the hich level of sulcs of 15overrunent-owned securities on the London murket, p a r t i c u l u r l y b y Uganda. The low lnflow i n t h e two Sollowin;; years was due largely to the clbsence of any new l o a n s , w h i l e sales of securities continued. The major sel ler w a s still t h e U/;anda Government which, from 3.956 to 1759 i n c l u s i v e , reduced t h e v a l u e of securities h e l d on the London murlcet by more than Sl.0 millicn. The large inflow i n 1960 and 1961 was t h e reLu1-L of' Exchequer Loans from the U.K. Governn~ent (E12 million i n 1960 and E18 m i l l i o n i n 1961) and loans from t h c IBRD (E2 million in 1961). No d e t a i l s are available for t h e most recent years.

- 39
Table 17. East Africa: Private Sector's Forei
and Assets Outotmdlng, 1.959-63-

e
A8

f?

Liabilities

at end of

1959

1960

1961

1962

Liabilities

Stock8 held by nonresidents

50.2 -

50.0 -

53.5 54.2 -

Loan capital (including debentures

and overdrhfts)
20.7

Public companies Private Companies Branches Local authorities(Kenya only) Statutory boards (including UEB)

22.2 35-3
"

20.5 26.7

18.2

16.3
2j.1

28.3
32.2 0.j

34.9
"

28.9
1.0 2 . 5
1

0.5
_ .

0.6

1 . 9

Assets
Long-term assets (sccurit res, e t c , )

37.8

34.1
2.0

34.9 31.8
1.' i 6,2 1.2
2.5

.. 35.2 -

32.2
1.9

..
...
. I .
. . I

Public companies Private companies Branches Local authoritles Statutory boards

Short-term assets (cach,
Public companies
etc.

6 *5 2.8
2.4 20.4

6.0
1*4 2.7 19.4 3-0 -

20.2

... ...
I . .

-)

3 7 -

3J

Private companies Branches Local authorities Statutory boards

_ "

" " "

Sources: East African Statlstical DeparLment, The Balance of Payments of East Africa; and data provided dlrectly bdp the East African Statletlcal Dapartment 1/ The table does not cover private individuals' foreign liabilities and ass&.

Table 18. East Africa:

Long-term Foreign C a p i t a l Transactions of Public Sector&/ (IG m i l l i o n s of pounds)

Loans r a l s e a on London market Central Goverments EACSO (EAHC) I n t e r - o f f i c i a l loans Central Governments EACSO (EAHC) Total liabilities Kenya Government Tanganyika Government Uganda Government EACSO (EAHC)
Net increase ( - ) or decrease i n assets ( s e c u r i t x e s held on London market) Total sssets Kenya Government Tanganytka Government Uganda Government EACSO (EAHC) P o s t Office Savings Banks Unallocated (net)

2.2

10.0

--0.5

-0.1

0.1

-on1

-0.3

--0.2

6 .

1.0

-0.1

-0.5

-0.5

767

4.b

I . .

Increase or decrease ( - ) in net l l a b i l i t i c s Kenya Government

Tangauyika Government Uganda Government EACSO ( m c ) Post Office SaviRgs Banks

Unallocated

No sign inaicsteo credit;

minus si@ indlcates debit.

.
Outstanding amounts of the public sector's long-term foreign liabilitleo and aseeta are shown i n Table 19. A t t h e end of 1963, net l i a b i l i t i e s amounted t o El03 million, r e f l e c t i n 6 gross l i a b i l i t i e s of E178 million and @OB6 asseta Of E75 million. There were net l i a b i l i t i e s f o r E A 0 of 39 million, Cor Kenya of E45 million, for Tanganylka of E12 million, and for Uganda of E7 million.

The short-term c a p i t a l transactions of the public sector cover government accounts with the Joint Consolidated and Joint Miscellaneous Funds i n London, with the Crown Abents and other government agents with overseas commercial banks. The movements have f o r moat of the years been fluctuating between net credits and net d e b i t s of E3-4 million. The l a r g e credit item, E6 million, i n 1958 was due t o an increase of nearly E3 million in shor >term loam by TanGanyika and a reduction of E4 million i n sterling assets by Uganda. A t the end of 1963, t o t a l s h o r t - t e r m l i a b i l i t i e s amounted t o E5 million and short-term assets t o L7 million (see Tdble 20). The changes from year t o year in outstanding amounts shown in t h i s Table and In Table 16 differ widely from the corresponding e n t r i e s i n the balance of payments (Table 91, presumably due to coverage and valuation adjustments.
&.

Monetary_movements
" "

The large f l u c t u a t i o n s over the l a s t nine years i n receipts and payments r e l a t e d t o f o r e l g n t r a n s a c t i o n s ia goods, services, grants, and c a p i t a l have periodically put a severe monetary etrain on the East African economy, which has been eaeed to some extent by drawings on the monetary i n s t i t u t i o n s ' foreign balances. This was the c a s e i n 1957, when a sharp d e t e r i o r a t i o n in the terms of trade and a drop i n t h e volume of cotton exports caused a substantial increase In the trade deficit, and to a still higher degree i n 1960 and 1964, when t h e s t r a i n 8ee1m t o have been closely r e l a t e d t o an unrecorded outflow of p r i v a t e capital. There have been years i n between with some improvement i n the exchange position, but for the nine years together there has been Q net d e t e r i o r a t i o n of E25 million. This amount is e n t i r e l y uccounted f o r b y the commercial banks, whose balances with banks abroad ( i e. , l a r g e l y t h e i r head offices in London) changed from net clailus of E17 million at the end of 1955 to n e t debts of 9 million et the end of 1964, I n cont r a s t with this E26 million reduction in the commercial banks' share of t o t a l foreign net monetary a s s e t s , t h e three countries' estimated common share of the East African Currency Board's s t e r l i n g a s s e t s declined only by E3 millionfrom E55 million a t thc end of 1955 t o E52 million a t t h e end of 1964, and this slight reduction was more than o f f s e t by t h e three COWt r i e s ' payments, i n 1962-64, of t h e i r gold s u b s c r i p t i o n s t o the International Monetary Fund.
1

East African countrieo

The currency issued by the Board i s c l r c u l o t i n g not only i n the three but also i n Aden and Zanzibar, and the Board's t o t a l wosa a s s e t s - - i n c l u d i n ~locaL os well 8 6 overseas assets--belonp, t o these f i v e t e r r i t o r i e s In common. However, because of t h ef r e e flow of t h i s currency over a l l five t e r r i t o r i e s , there a r e no poasibilities of making current estimates of t h e d i s t r i b u t i o n of the currency c i r c u l a t i o n and, therefore, balance of pnymente e n t r i e a f o r t h e f i v e territories, a8 well a6 t h e i r s h a r e s of o u t o t a n d i w amounte of assets, can only be calculated as very rough approxirnntlons,

. I

42

Table 19. East Africa: Public Sectors Long-term Liabilities and Assets OutstandAng
( I n m i l l i o n s of pounds)

As at end of

1959

1960

1961

1962

lgGg

June 1964

Long-term l i a b i l l t l e s Publicly Issued stocks held on the London Register Kenya Government Tangarlyika Government Uganda Government EACEIO ( E m )

overdrafts) Kenya Government Tanaanyika Government Uganda Government

mcso

(MC)
T o t a l long-term l i a b i l i t a e s

7.5 10.0 11.2 8.0 12.2 14.4 18.4 10.0 17.3 17.4 17.3 18.3 121.4 135.6 154.3 165.5 178.4 191.1
0.5

1.9

4.8

6.0 9.5

Long-term assets ( s e c u r i t i e s , e t c , )

K e n p Government Tanganyika Governmext

EACSO ( m c ) Post Office Savings Banks Kenya Tanganyika
Uganda
Total long-term assets
Uganda Government

13.7 9.3
21.0 23.9

14.8 9.5 20.3

25.1 6.0

6.5
(4.2)

(3.8)
75.7

(1.2) (1.2) (1.1) (1.0)

74.4
L -

Net long-term a s s e t s and l l a b i l i t l e s ( - ) Kenya Government Tanganyika Government Uganda Goverment EACSO ( w c )
Sourcea: East African S t a t i s t i c a l Department, The 3alance of Payments of East Africa. and data provlded directly by t h e E.A. Statzstlcal Department.

43 "

Table 2 h East Africa: Pllblic Sector's Short-+,crm Foreign L i a b i l i t i e s and . i s s e t s Outstanding

( I n millions of pounds)

As at end of

1959

1960

1961

1962 6.7

1963
5.2

Short-term L i a b i l i t i e s
Kenya Government Tanganyika Government Uganda Government
Short-term Assets
Kenya Government

2.5 3.5 3.2 ""-

4.3

1.4

7.2

6.6

6.6

Tanganyika Government Uganda Government %CSO (EAHC ) Post Offlce Savings Banks
I k t Short-tam Assets Liabllltles ( - )

or

1.8
-0.2

-2.1

4.0 -0.2 -2.0

-0.1
1.2 -3.1 -0.0 2.5 0.1

1 . 4

Kenya Government Tanganylka Government Uaanda Government

mcso ( m c )

Post Offlce Savings Banks

-0.9 -2.,0 -1.3 0.2 -1.3 1.4 36 0.2

"

1.8
3.2
"

1.3 -1.4 -0.4

LO
0.1

Sources: East Afrlcan S t a t i m i c a l Department, The Balance of Paymcnls of EdSt Africa, and data provided d i r e c t l y by the E A, Gt,atlstical Departmen i

- .

1 / Includes t r u s t funds set aside by the E.A. Culrency Board t o he used for-bUbSCrlptiOnS LO international f i n a n c i a l i n s t i t u t x o n s .

-44The outstanding amounts of the three East African shares of the Currency Board's foreign reserves, shown i n Table 20, are calculated on the b a s i n of the aseumption that currency i n circulat5on and shares of ownership have for a l l the years under review been d i s t r i b u t e d between the five territorles In the proportions indicated by the present profitsharing formula, i.e., 3 . 5 per c e n t to Zanzibar, 12.0 per c e n t t o Aden, and approximately 28.2 per c e n t to each of the three East RErican countries. Any error13 in this procedure trill show UP along w i t h a11 other error8 and omissions u n d e r "unidentified transactions", both in t h e balance of PeYm a t s of East Africa a8 a whole and i n those of t h e three i n d i v i h d . countries.

In the calculations for Table 21, special consideration had to be given to the fiduciary lending, which r e p r e s e n t s , at t h e same time, Part O f . the gross a s s e t s to be shared and debts from the a s s o c i a t e d territories' Governments or commercial banks to the Board. The Board's powers f o r fiduciary lending to the associated Governments started i n 1955 v i t h a limit Of 320 million, which has since then been increased step b y S t e p to the present E35 million. In 1961, the Board introduced powers for lending to the comercial banks in connection with crop financing; th o r i g i n a l ceiling of E5 million was increased, i n 1962, to E10 million. While the fiduciary lending powers are allocated amng the Governments on the b a s i s of thc above-mentioned proflt-sharing formula, no corresponding a l l o c a t i o n by countries i s m a c l e for the lending powers under t h e crop finsncing acheme. Since such l e n d i n g normally t a k e s place v i a the Nairobi office of the bank in question, the lending under this Bchenle is a l l o c a t e d to Kenya in the calculations in Table 20.

As illustrated i n the Table, the three East fi-frlcatl Governments have increased the outstanding amounts of drawings under the f i d u c i a r y powers almost continuously from year t o year, and at the end of 1964 they had drawn ~ 2 0 . 6million out of t h e i r t o t a l fiduciary ullocation of' C29.7 milI f o n . The remaining amount of 9.1 m i l l i o n . of which CG. 3 m i l l i o n belonGG to the Kenya Government, 2 1 . 0 million to the Tenganylkco Government, and E1.0 m i l l i o n to the Uganda Government, repreoente t h a t p a r t of t h e Currency Board's a s s e t s t h a t is most freely a t t h e d i s p o s a l of t h e i n d i v i d u a l &3OVerrIInentS Q Y l i q u i d i t y and as exchange reserves.

The crop f i n a n c i n g scheme was used v e r y l i t t l e clurln,: the f ' i l - s k y c a r s of its existence, but t h i s chansed s u b s t a n t i a l l y in 1964 when, at the end of the ycar, the commcrclal banlc5 had borrowed E3,% m i l l i o n out of' the s c h e d u l e d maxlmm o m ~ u n tof E10 m i l l l i cn. The u n u t i l i z e d amount of C 6 . 8 miLlion may, Coo, be considered Q disposal reserve b y m e a m of' whlch the Currency Board can, on spec-lfied conditions and w i t h i n c e r t a i n limits, ease a monetory s t r a i n and, thus, conduct monetary p o l i c y functions normal to a c e n t r a l lmnk proper.

-- - - -- - For more d e t a i l s , see section-13 o f ' t h i s paper.

" "

" " " " "

" -

a- 45
T a l e 21.
E a s t Africa: Ertimstee of Kenys's, ~ ~ ~ t g a n y i a ka' and Uganda'a Sharer of -reign Reeervee held by the E M t African Currency B o d
( I n m i l l i o n s of pounds)
As at end of:

**

Kenya Government s u n u t i l i z c d flduciary a l l o c c t i o n Total fiduclexy a l l o c a t i o n Dr amngs Other a s s e t s

TangWa

Covernnent's unutlllzed f i a u c i a r y o.llocatron T o t d flduciary d l o c e t l o n Dramngs Other a s s e t s

Ugonda

Govcrkment' s unutlllzed f1duciC3y alloce;"1on

Totcl l l d u c l m y allocation Dr amnC;s Other z s s e t s

N 1 E a s t Afrlca
Govern-ncncs' unutlllzcd f l c l u c l w y Lllocatlonc

Total fiauciw uecation

DrebWipeS

Comcrclrl btmlLs' unutlllzeu f l d u c l - J y allocation Total f i d u c l u r y allocation Drm l n p Other JS s c t n

Lourcec: Prcparco by the Fund staff on t h c basls oE datu provldca b~ t h e East Af'rlcanCurrency StatlstlcjL Deparbnent.

Board and t h c Cast, ALfrlcan

The remaining amount of the Currency Board's assets is l a r g e l y t i e d a8 s t a t u t o r y cover for the currency issue, and i t s m o b i l i z a t i o n as an instrument for monetary p o l i c y w i l l require a new p o l i c y d e c i s i o n by the Currency Board.
The establishment of f i d u c i a r y lending powers and the actual lending under these powers of E24 million repreeent, i n a c e r t a i n sense, a mobilization of reserves, without which the East African economy would, presumably, have come under a s t i l l tighter monetary strain. The f a c t t h a t the estimated East African share of the Currency Board's assets is only E3 m i l l i o n lower a t the end of 1964 than at the end of 1955 reflects, however,, t h a t the easiKg of the monetary s t r a i n through f i d u c i a r y lending has l i t t l e wore than compensated for t h e concurrent increase in currency circulation, which under the Currency Board system i n o p e r a t i o n up to 1955 would have r e q u i r e d accumulation of an equal amount of sterling nseete. The t o t a l amount of currency c i r c u l a t e d by t h e Board increased from 60 m i l l i o n a t mid-year 1955 to ~ 8 million 0 a t the end of 1964, of which, on the b a s h of the a l l o c a t i o n implied i n t h e p r o f i t - o h a r i n g formula, C51 million and E67 million, respectively, can be estimated to have been c i r c u l a t i n g in the three Eest African countries.

The drawings on commercial banks' belances w i t h overseas banks have largely been channeled through the Kenya banks, which had ovcrseB8 n e t claims of E10 million a t the end of 1955 and net d e b t s of E15 m i l l i o n at t h e e n d of 1964 ( s e e Table 22). During the 881138 period, the Uganda banks' overseas net claims went down from E3 m i l l i o n t o El m i l l i o n , w h i l e those of t h e Tanganyika banks increased from E4 m i l l i o n to E6 m i l l i o n . The development in t h e banks' balances with E a s t African banlcs show that Tanganyika and Uganda have, i n turn, drawn h e a v i l y on Kenya banks.

No comprehensive estimates are a v a i l a b l e fcr t h e balance of payments of t h e t h r e e I n d i v i d u a l countries v i o - b - v i s all foreiGr. countries, i n c l u d i n g the two o t h e r s , and the d i f f i c u l t i e s in makinp, such estimates are extremely g r e a t because of the free flow of a common currency, the p r o v l s i o n of common services by t h e FACSO, and the common market arrangements I n v o l v i n g absence or border c o n t r o l between the three countries. However, a systematic allocation by country has been made f o r recent ycoro of E a s t A f r i c a ' s transoctio~aw i t h "overseas" c o u n t r i e s , includm:: all countries o u t s i d e East P f r i c u , and w i t h regard to i n t e r t e r r i t o r i a l t r s n s n c t i c n s , the official t r a d e s t a t i s t i c s U t a have been supplemented with e s t i m a t e s for transportation and handllng charges for imports arid exports through Kenya by Uganda and Tanganyika. Summaries of t h e s e elercents of the t h r e e countries' balance of payments for 1959-63 ere shown in Tables 23 and 2k. It should be emphasized, however, that e v e n t h e breakdown of overseas transactions i n v o l v e s a s u b s t a n t i a l de[, Tree o f ' uncertainty, and that in addition the luck of estimates on s i g n l f i c o n l , c a t e c o r i e s of i n t e r t e r r i t o r i a l t l g a n s a c t i o n s , p d r t i c u l u r l y those i r r p l e mcnted through t h e EACSO, &reaLly limits the value of t h e data presented in these t a b l e s .

'.

Table 22.

Zaot Africa:

Commercial Banks' Balances with Overseas and East Al'rican Banksr/

(In millions of pounds)

1955
A. Balances w i t h overseas Banks

1956
18.0 -

1957
10.6

1958
14.1

1959
12.1 -

1960

1961

1962

1963

1964

"

Kenya Tanganyika Uganda

2/ B. Balances w i t h East African Banksa

10.2

3-9 2.8
"

8.3 4.6
511

3.7

8.7
2.0
2.9

4.2
2.8

2.7

3.4

8.4 2.1

1.6
4.0 -

2.4

"

4.7 3.5 -

Kenya Tanganyika Uganda

~~~~ ~~

4.8 34 2
-5.2

1.6 4.1

-2.8

3.4 -3.2
~~~~ ~ ~ ~

3.8

-~ -

~-

Sources: East African Statistical Departrrent, by t h e East African Statlstical ilepartment.

Economic and Statistical Review;

and d a t ap r o v i d e dd i r e c t l y

I/ No slgn i n d i c a t e s net claims; minus s q n indicatesnet 2/ The figures include balances with Zanzibar banks; but
the-three East

debts. t h e major part of t h e t o t a l of n e t balances for

African counCries i s acccunted for by timing differences

and other s t a t i s t i c a l d l s c r e p a n c i e s .

Table 23.

EastAfrica.Fragments of InclividLd Balenc s of Payments for Kenya, TsngaFyika, and Uganda

( I n millions of pounds)
East mica

Kenya

TanGanyika

Uganda

1959
A.

E . C . D .
E.

I r z r c a s c or decrcase (-) i n n e t monetary acseto of vh : h accounted for by: Goods and oversensserviccs Oversear trhnafer payments Ovcrcear cnpitdal movclrents
T O L ~

-1.2
2.7 0.9

4.6

(n through

D)

0.2 -9,4
acsets -2.3
4.0 1.0 12.1
I

F .
A.

Unidentified t r a n s a c t i o n s (A nunus E)

lgG0 Inercesc or decrcasc (-1 17 nctmonetary o f whlch eccowltcd f o r by B. Goous and ovcrcear services C. Oversens transfer ?q,ments D. Overseas capltnl novements
E.

Total (B throueh D)

17.1
(A nunus E )
asscts

F.

Unidcntlficd. transactions

49.4
"

P.

1 5 6 6 1 Incrcasc or dccrcesc (-) In nct monetary o f vhlch eccounted for by. B. Goods m d overscas serv1ccG C. OverseaE trvlGfcr p w l e n t s D. Ovcrscas c q i t a l r,ovelncnts
E.
I?,

1.0

3.5 4.5
9.0

Total ( B throu[,h D )

Unidcntlfledtrnnsectlons

(A m n u s E)

-9.0

A.

1932 Incrcaceor decl c a d ( - ) I n nct monetmy assets a f vhlch accountcu io1 bJ B. Goous MUovcr%es scrvlccs C. Ovcrccns tranzfcr pcyncnts D. Ovorseab cnp1to.l movenents

1.8
-1 3

3.4

11.7 13. I:

E. T o t c l (B through D)
F, Unldcntlflcdtransactlons
(A nunu3 E)

-11.6
esscts
-2.2

1% 3 A, : ICI cacc 01 dccrcnsc (-) I n netmonetary o f which occountcd fm by. D. Coous and ovcrscasscrvlccs C. OvcrscaG transfcr peyncnts D. Ovcrreas capital lilovcments
E.
I ? ,

5.3
007 Ir. 0

Total

(n

thr0Up;tl

n)
(A minus E )

10.0

Unidcntificdtramactions

4 . 2 . 2

Eccept i n ltct>luA, no GiGn i n d i c a t c s c r e d i t ( d c c r e a s c i n a s s c t s o r i n c r e a m i n l l d i l l t i c s ) , w h l l c indicate6 d e b i t (incrcasc i n nosctc o r d e c r e a s e i n l i a b i l i t i e s ) .

minus sign

Table 24. East Africa: Fragrner.ts of I n d i v i d u a l Balances o f Fqmente f Tanganyika, and Uganda. Totals and Annual Averages for 1959-63-

1 :

Kenya,

(In m i l l i o n s of pounds)

Kenya
A . Increase or %crease ( - ) i n Net Monetary Assets E.A. CurrencyBoard's w s e t s k

Total 1959-63 Tanganyilra Uganda

-3.4 0.1

East

Africa
-10.5

Annual Average 1959-63 TangaEast Kenya nyika Uganda Africa -0.6

-0.7 "

Commercial banks * foreign bal.nr.=es O f which accounted f o r by:

Merchandise transactions Overseas s e r v i c e s

-3.2 3.1

-3.9

-0.8

2 . 8
-G*7

-23
-16.5

TX
-1.2

a . 6
-1.4

-2.1 1.2

-6,3

-3- 5

-0.7

-3.3

B. Goods and Overseas S;.rvlces

C. Overseas qyansfer Payxnents

"

D. Overseas @&)its1 p m n e n L s E, Total (B t h r o u g h D)

F. Unidentified wansactlons

5.5

8.8
"

11. G -

r/ Zxcept in Item A, no slgn I n d i c a t e s c r e d l t (decrease 111 a s s e t s o r lncrease in l i a b i l i t i e s ) , while minus sign indicates debit (Increase ~n a s s e t s c,r decrease in l i a b i l i t i e s ) . Including gold subGcription t o t h e IMF, El. 1 million each for Tanganyika and Uganda.

F Ua ~ tafi.

s llrces.

E s t u u t e : , by

East African

sbL I s t i c a l Department,,
*

" " " " " y _

to

SOlnG

e x t e n t adjusted and supplemented

by the

For t h e f i v e - y e a r p e r i o d 1959-63 a s a whole, thc d e t e r i o r a t i o n of the net monetary p o s i t i o n was practically the same, E3-I+ million, for each of t h e t h r e e countries, eventhough the movements v i s - h - v l s the Currency Board and overseas and E a s t African banks (see Tcble 22) differed widely. The balance of goods and overseas services show, for the f i v e years, a d e f i c i t for Kenya a t E44 million, while T a n p n y i m had a d e f i c i t of only E6-7 m i l l i o n , and Udancb a surplus of Ell m i l l i o n . Overseas o f f i c i a l grar;ts and o t h e r t r a n s f e r payments brought Kenya and Tanganyika net r e c e i p t s of E23 million each, while Uganda recejved E9-10 million. With regard to recorded capital movements, Kenya has received E49 m i l l i o n , Uganda E37 million, and Tanganyika E28 million. Altogether, the recorded t r a n s a c t i o n s in goods, s e r v i c e s , t r a n s f e r payments, und nomonetary c a p i t a l have given a s u b s t a n t i a l surplus for the f i v e - y e a r period f'or all three count,ries. The concurrent detel Orat i o n of t h e rnmetary poaitioo indicates that there has been a large Outflow Of f o r e i g n exchange through m i d e n t i f l e d L r a n s a c t i o n c - - f o r Kecya E33 ] n i l lion, for Tanganyika E44 m i l l i o n , 3nd for Uganda E61 m i l l i o n . M t h o u g h the u n i d e n t i f i e d balance has f l u c t u a t e d Greatly from year t o year, it has been n e p t i v e f o r each of the c o u n t r i e s f o r all t h e years from 1960 onward. As mentioned earlier, the correspandmg unidentified balance for East Africa as a whole is b e l i e v e d to reflect wainly an unrecorded outflow of p r i v a t e i n d i v i d u a l s ' c a p i t a l .F o r an e v a l u a t i o n of the baldnce for each i n d i v l d u a l countrl, however, it must be t a k e n i n t o account -chat the balance may i n c l u d e substantlal amounts of unrecorded I n t e r t e r Y i t o r l o l t r a n s a c t i o n s i n s e r v i c e s and c a p i t a l , dnd that it may also r e f l e c t the higher d e g e e of uncertainty r e l u t e d t o t h e estimates for the i n d i v i d u a l c o u n t r i e s t h a n t o those f o r d l 1 E a s t A f r i c a . For thcse reasons, it W i l l not be Justifiable t o draw any conclusion from the r e l a t i v e magnitude of the unidenilfled transactions for the t h r e e cuuntrles as t o the d i s t r i b u t i o n of the assumed unrecwlded capital outflow from E a s t Africa. Best Indications seem t o be t h a t such an outflow ha; t a k e n place in t h e y e a r s since lgG0 t o A greater o r lesser e x t e n t from all the three countries.

- 51 -

I V . Trade and Exchmge Controls in East Africd'

The t r a d e and exchange c o n t r o l s in East Africa may be broadly divided i n t o two groups: t h o s e r e l a t l n g t o t r a n s a c t i o n s between t h e three East African countries and those relating t o transactions w i t h countries outside East Af'rica. Trade and exchange t r a n s a c t i o n s between the thrse Afrlcan countries are r e l a t i v e l y free, while those w i t h the other corntries are subject to various c o n t r o l s and r e s t r i c t i o n s .

1 .

Interterritoria cl ontrols

The three East African countries have followed until v e r y r e c e n t l y i d e n t i c a l or s u i l a r policies in respect of i n t e r n a l and external. econcmic relations. Relations among them have been characterized by the c r e a t i o n and maintenance of what is g e n e r a l l y c a l l e d the East African Ccmmon Market. The Common Market is based i n p a r t on various specific agreements concluded between t h e East African countries and has developed in accordance with U d e r s t a n d i L g s t a c i t l y a c c e p t e d by I t s participants.

The most e s s e n t i a l p a r t of t h e East African Ccrrsnon Market. c o n s i s t s Of a customs union with ahno& uniform customs tariffs applicable to imports from countries outside t h e Common Market. It is. combined with a r e l a t i v e l y f r e e movement of g o d s and c a p i t a l within the Ccunon Market area. The three East African countries maintam broadly t h e Sam t a x s t r u c t u r e and rateG although t h e r a t e s a r e e s t a b l i s h e d s e p a r a t e l y by each country. The cohesion of t h e Common Market is f u r t h e r strengthened by various Common economic arrangements such as a common currency and sharlng of common t r a n s p o r t and comunicatxou systems.
P r i o r to the implementation of the Kampala Agreement
ln

A p r i l 1964,

(see below), the three countries appl-ied very few restrlctlons on trade w i t h one another. These reGtrlctxons were mostlyconfined t o ccmmoditics

wnose trade was controlled b y s t a t e trading orgdnlzations o r t o 6cme ccmmodities which happened t o be in s h o r t supply from %me t o time i n t h e l o c d markets.

a .

Kampala Agreement

While t h e East African Common Market economic area enJoyed benei'xts of a large, r e l a t i v e l y free, econcmic u m t , p u r t i c i p a t l n g c o u u t r i c s Gilowed scme d i s p a r i t y in their respective rates of GrowLh. I n nplte of the establishment of the Distributable Pool Fund adrnlnistered by UabL Airican Cormon Service; Organization, which had as one 01' its purposes to IrrJng about scme 1 n t e r t e r r l t o r L d r e d i s t r i b u t i o n of inccre, b o t h Tan@nyilTa and Uganda f e l t themselves at a disadvmiagc i n relation t o thc benefiks OS the Cornon Market. Realizing t h a t widely dlfferent Levels of l n d u s t r i a l i z a J t i o n i n t h e three East Mrlcan c o l l n t r i e s could c o m t i t u t e a Lhreat t n t h e continuation of t h e Cormnon Market, ',he countries at a meetmg in Kampda i n April 1964 arrived at an afireement t o regulate the w o s k l ~ of t h c Common Market.

'

s section does n o t cover-the changes introduced on

- 52 A n Emergency Committee consisting of the Ministers f o r Finance and the Ministers for Commerce and Industry of t h e three countries was entrusted with Implementing t h e Agreement. They took action along the

following linea:
(1) In the case of four lndustrie~--tobacco, shoes, beer and cementparticular firms operating In more than one country were asked t o t a k e steps to bring about a closer balance in trade. The n e t e f f e c t in r e l a t i o n t o the imbalance between K e n p a d Tanzania of the actions t o be taken by these firms would be to improve t h e belance in respect of tobacco by Ep(OO,OOO; for foot.b y ~l00,OoO; for beer by E500~000; and for cement by ~500,000,making s t o t a l of E1,800,000, or a net reduction o f ' 24 per cent of t 3 1963 net trade imbalance. The t o t a l e f f e c t i n reducing imbalance between Uganda and Kenya might be Of t h e order of E650,000 yearly which is e q u d t o approxlmately 23 per cent of the over-all imbalance. A6 regards t h e favorable Uganda balance with TPsnzstznia, t h e action taken w i t h regard to cigarettes may have S reduceffect of the order of E200,OoO. The t o t a l in respect of beer could be reduced by E5O,OC;O, making au over-all r e d u c t i o n f o r these two items of E250,000 or 1 . 7 per cent of t h e 1963 imbalance.
b a r

C e r t a i n industries under the E.A. Industrial Licensing Ordinance are be e l l o c a t e d on a monopoly basis to certain countries. The industries which have been allocated SO far, and the countries t o which they have been a l l o c a t e d a r e : (a) Tanzania--aluminim f o i l , circles and plain

(2)

t9

sheets; wireless receiving sets and components thereof; and motor vehirles tires and tubes; (b) Ugande--al,l parts of b i c y c l e s and nitrogenous fertilizers; and ( c ) Kenya--;LncandesceQL filament, electric lmps.

(3) a o t t t s can be applied where there i s e x i s t i n g productive ca2acity in t h e d e f i c i t country, and a suspended quota may be granted where t h e deficit country wis; a s to develop productive capacity. The quota system L G to be controlled by an interterrit,orid Quota Committee. Thus fa, Tanzania has subdecked over 5 0 commodities or groups of c o m o d l t i e s o r i g i n a t i n g in Kenya o r Uganda to individual licensing, including various
foodctuffs, textlle products, b u i l d i n g materials and metal manufactures. Similarly, Uganda has r e s t r i c t e d the import of beer, s t o u t , and cementa from Kenya and Tanzanla. Kenya has, however, continued t o a d r n i t imports f r e e l y from the other two countries.

(4) Both Kenya and Ugenda l i s t e d some prcducts which t h e y could ixmedlcttely purchase Prom Tanzania, and Kenya did the same f o r Uganda.

(5) The questions of f u t u r e allocation of industry and d i f f e r e n t i a l incentives to industry were refezred t o a committee of' industrid experts, which the three Governnlcjnts w e now in t h e process of G e t t i n g up.

- 53 The Kenya delegation Informed t h e Eheergency Cornittee t h a t i t s acceptance of t h e reccmmendationa of the Report was subject t o c e r t a i n ucbumptioas. The inclusion of these assumptions in the Report was not agreed by the Tanzania delegation, because they considered t h a t scme of them ( L e . , the common services and a ccmmon currency) were outslde t h e terms of reference of the Emergency Camnittee and because they have not in f a c t been discussed, The assumptions specified by t h e Kenya ddeGatlon were: t h e East African Common Market, t h e ccmmcrl services, and i n Pmtlculm 9 common single currency will continue; all parties recognize t h e value of a s s o c i a t i o n i n a common market in f o s t e r i n g t h e economic development of t h e whole area; and a l p a r t i e s agree t h i t t h e Comon Market C a n Only survive E t h e benef i t c of t h i s economic development a r e f a i r l y shared between them.
2-

and exchange r e l a t i o n s
Trade

w i t h countrieG outside East m i .

%e exchange control systems of t h e East African Ccmmon Market c o u t r i e b ViG-a-vis c o u n t r i e s o u t s i d e EaGt Africa, c l o s e l y fo3low t h a t Of t h e United Kingdom except for certain deviations necessitated by local.

conditions, Payments and t r a n s f e r s from East African couniries to other b t e r l i n g ares. countries are free of any r e s t r i c t i o n . Payments and tramfer6 from other sterling area countries to these countries w e a l s o not SubJect t o any r e s t r s c t i o n .
t o

Paynents and t r a n s f e r a on current account from East Afrxan countries countries outsldc the sterling area a r e sub(]ect t o approval frcm t h e exchange c o n t r o la u t h o r i t i e s . Such approval is granted i n a l l cases of genuine current payments and transfers. Transfers and paytWnts f'rcm countries outslde t h e s t e r l i n g area t o each of these c o w l t r l e s a r e SubJect t o c o n t r o l s and, i n the case of capital. transfers, to certain r e b t r i d i O n S * The three countries p r o h i b i t commercial imports from t h e Republlc of South Africa* Both Kenya and Ttznzanla do not &low commercial llnports from metropolitan Fortugal; in addition, Tanzanla prohibits ccuunercld unports from Portuguese possetxione.
Individual llcens+ng 1s applied to various imports. Kenya appl iec i n d i v i d u a l l i c e n s i n g t o specified imports mdepenciently ut' the c o u n t r y of origin. Both TanganyLka and Uganda matntain indlvldual llccnsine in respect of %he xnport of sorue c o m d i t i e s from specified countrles and a l l . mports from o t h e r countrles, Imports Lnto the t h e e Hast Al'rlcan countries from couatries outolde East Afrlca whlch are n o t Gubject t o l n d i v i d u a l lxcensing a r e free of quantitative restriction. Payments f o r a l l authorized imports a r e free of r e s t r i c t i o n .
Kenya and Ugandct c o n t r o l exports, of' s p e c i f i e d ccmmodlties. Each of t h e East African corntrier, p r n h i b i t expnrLG to SouLh Africa. I n acldltlon, Kenya and Tanzania pl ohihit expolts t o Portugal.

- 54 None of the E a s t African Cormon Market countries maintains bilateral Pawent8 arrangements though they have concluded bilateral trads Wreem a t s w i t h a number of countries. These agreements do not provide for trade quotas or other quantitative determination of mutudl bilateral trade,

In addition tu rewar customs duties, "suspended" duties on t h e u p o r t of 1 5 items are maintained by each of t h e E a i t African C C u n t r i e f i These duties o n l y become operative ( e i t h e r i n whole or in p a t ) Js purSUQnCe Of an order issued by the Governments of the respective C r J U n t r i e S a
The Miniater f o r Finance of each country m a y remit it: whole, or in P a r t , m y import duty or suspended duty payable b y any person on any gocdG imported if he i s satisfied that it i s in t h e public interest t o do SO or that payment of any auch duty would operate inequitably or h a Shly.

The E a s t African b h l l l i n g , issued by the East African Currency Bawd, is t h e l e g a l u n i t of currency in crrculation In East, A r n c a and is o f f i c i a l l y maintained a t par with the U.K. shilling, g Lving t h e Telatj ons h i p XA Sh 1 = US$O,l4. No par value for t h e East African s h d l i n g ~ U G been established with the Fund.

In transactions w i t h the p u b l i c equivalent to at least E s t g , 5,OcO t h e East African Currency B o a r d c t a n d s ready to issue E a b t African c u r rency rn exchange For s t e l l u g and $0 supply s t e r l i n g i n exchange oY E a s t African currency. In t r a n s a c t i o n s covering smaller amoun-ts, the public has to d e a l t h r o u g h authorized banks. The o f f i c i & buyin& und selljng rates f o r the pound s t e r l i n g differ frcm p a r i t y by 1/8 per cent and 1/2 per cent, respectively. The Currency Board rleals with i t s banking customers and (in case of l a r g e r t l a n s a c t l o n s ) with private firms a t rates between the o f f i c i a l limits. To avoid t h e costs of exchange, a number of importers, exporters, and other persous are reported t o c a r r y

9
I

- 55 out their transactions i n pounds sterling outside the barrking system through unofficial t'ccmpensation". But-the importance of such transactions has gradud..ly diminished p a r t l y owing t o t h e reduced t r a n s f e r charges now used by the Currency Board.
"

The East African Currency Board carries out transactions only i n pounds sterlhg and E,A, shillings, but authorized banks purchase and sell otherforeigncurrencies, Comaercid. and tourist enterprises are also permitted t o accept foreign currency in payment of g o d s and services supplied t o f o r e i g n tourists but the foreign currency so acquired must be surrendered t o an authorized bank i n exchange f o r E,A, shillings, Since 8n active exchange market does not operate i n East Africa, rates f o r such transactions are baeed on the quotations i n the London exchange market.
In cases of genuhe commercial transactions, commercial banks carry out forward exchanga dealings an account of their customers; they do not assume an uncovered position.

4 .

Administration of control

The Ministry f o r Finance in each of the three countries i s responsible f o r t h e administration of the exchangs contror system i n i t s respective country,Authorityforapprovingautomaticallyordinarymport payments and specified payments for invlslbles and capital up t o established lirnlts t o countries outside t h e s t e r l i n g area i s delegated t o authorized banlcs. Applications for all other current payments and c a p i t a l t r a n s f e r s t o countries outside the sterling area a r e examined and approved by the Office of Exchange Control, l o c a t e d i n the Ministry f o r Finance. Import and export corltrols are administered by special offices A n the Ministry of Ccmmerce and Industry, In Kenya, It 1 s the Director of Trade and Supplies; i n Tanganpka, theController of Imports and Exports; and in Uganda, the Permanent Secretary of the Ministry of Commerce and IndustryIn the case of c e r t a m s p e c i f l e d commodities, t h e u - imports and exports are oubject t o c o n t r o h and restrictions mposed by state marketmg bcwds and/or special tradlng organizations,

5.

Prescription of currency

East African countries maintain prcscrlptlon of currency requlreuents similar t o those of t h e United Kingdom, Settlements w i t h c o u n t r i e s i n t h e s t e r l i n g a r e a may be nlade i n any s t e r l ~ n g area currency. Ya,pnertc from countries outsrde t h e sterllnG area must u s u a l l y be receLved 111 sterling, i n East ican shillings from an External Account, o r i n any specified currenc y y m d i n Tanzania, a l s o in any foreign currency for
I

The specifiedcurrencies are listed as follous: Austrian schil.lLnG6, Belgian fruncs, Canadian dollars, Danish and Faroese kroner, dcuLsche m w k , French francs, Italian l i r e , Netherlands gulclerc, IVorweglan l w u n ~ r , Portuguese escudos, Swedlsh kronor, Swiss francs, and U,S. d o l b r s .

- 56 which there i s a ready exchange market. Payments t o countries outside t h e sterling area may be made in convertible sterling, in East African shillings to t h e c r e d i t of an External Account, or in any foreign currency.

6.

Nonresident accounts

Persons and legal e n t i t i e s who are not residents of any of the East African countries may maintain, according t o their countryof residence, either a s t e r l i n g area account or a nonresident account, f o r settling authorized current and c a p i t a l transactions. In addition,residents of countries outside the s t e f l i n g area are p e d t t e d to maintain blocked accounts.

The s t e r l i n g ares accounts, designated l a East African s h i l l i n g 6 , may be maintained by r e s i d e n t s of other sterling a r e a countries. These accounts may he credited with all authorized payments due t o sterling area countries, and the proceeds of s a l e s to an authorized bank in East Africa, !These accounts m y be debited f o r payments f o r e x p o r t s t o c o u n t r i e s in t h e GGerling area, for payments to residents of other countries in the sterling area for any purpose, for transfers t o other sterliry: we8 accounts i n an E a s t African country, f o r purchases of any sterling area currency, and for withdrawt;rls by t h e account holder while he i s temporarjly the r e s i d e n t of an East African country. "ransfer~i between sterling area account6 may be made freely.

"

Accounts,~hiDpine/Airlino Resident Accounts and Undesignated Nonresident ACCOU~S. The banks a r e requlred to obtain the prior approval of the exchange control authorities before opening any nonresident account, except t h a t in Kenya and Uganda prior approval is not necemcrry I n cases where nonresident status can be established without any doubt.
While BternaL Accounts may be opened by any r e s i d e n t of the nonGterling area countries, t h e "Shipping/Airline Resident Accounts" a r e required t o be maintained by agents of nonresident shlpping/airline companies w i t h an authorized bank in East A f r i c a i n t h e name of t h e i r nonresident principals, UndesignRted Nonreb dent Accounts are rather infrequent and a r e &llowed t o be opened i n o n l y exceptional. circumstances when, for example, a nonresident pays frequent v i s i t s t o t h e s t e r l i n g area c o u n t r i e s and is obviously not e l i g i b l e to maintain e i t h e r a s t e r l i n g area account or External Account.
A l l payments into nonresident accounts are s t r i c t l y c o n t r o l b d and banks are not permitted t o grant any overdraft facilzties t o nonresidents withoutprior approval of the exchange control a u t h o r i t i e s . Balances I n these accounts a r e e l i g i b l e for transfer t o countries outside the sterling area withcut any a c r t ~ t i n ym via oxchange con-brcll oy~rova;l.

Undesignated nonresident accounts are not permitted by Tanzanla.

- 57 External Accounts may be credited with authorized paymentfi by r e s i dents of the sterling area countries, with transfers from other External. Accounts, and with proceed6 of s a l e s of non-sterling area currencies and gold. Ekternal Accounts may be debited for payments t o residents of the s t e r l i n g area countries, for transfers to other External Accounts, and for the cost of purchases of foreign currency and gold.
"Shipplng/Airline Resident Accounts" may be credited with sterline; received from an Ekternal Account, and with earnings by the companies' vessels/aircraft from residents of Eaet Africa, from residents of other sterling area countries provided the funds a r e regarded by the l o c a l Exchange Control a6 eligible f o r payment t o a t e r n a l Accounts, and from residents outside the sterling area received in sterling from Ekternd. They may be debited with di~bursements for expenses such as Account. ref'unds on unused travel t i c k e t s or for other 17cd. expenses and other payments authorized by the Ministry for Flnance.
Apart from the nonresident accounts mentioned above, residents of nonThese accounts s t e r l i n g area countries may d.60 hold Blocked ACCOU~B. are credited with c e r t a i n c a p i t a l proceeds which may not be placed at the free disposal of the nonresidents. Funds i n Blocked Accounts i n E a s t Africa may be used t o purchase specified s e c u r i t i e s which do not mature withinfive years from thedate of acquisition. Income from such securities may be remitted abroad. Proceeds at maturity of any such s e c u r i t i e s that are redeemable may be transferred t o a country outside t h e sterling area, Transfers of blocked funds may be made t o any other s t e r l i n g area country, provided a l e t t e r of nonobjection is issued by the exchange control authorities of the country where such an account waG i n i t i a l l y held. In London there are dealings in blocked funds through whlch blocked accounts transferred from an East African country t o London can be ceded by t h e n holder t o another nonresident.

7.

Imports and h p o r t payments

Trade controls and r e s t r i c t i o n s i n the East AfrLcan countries differ 8s to t e r r i t o r i d and commodity coverage and restrictiveness. While Uganda prohibits commercial Imports only from South Africa, Kenya does not admit commercial. imports from either South M r i c a or Metropolitan Tanzania prohiblts commercial imports frcm South Africa, Portugal. possessions. The threecountries a l s o proPortugal., and &lJ, Portuguese hibit certain otherimports f o r security,publichealth, m o r d , and

similar reasons.

All t h e three countriecs control import of specified g o d s from countries outside the East African Common Market in order t o protect local industries. I n addition, Tanzania asld Uganda apply individual licensing t o all imports from certaincountriesor groups of countries. Imports of a l l other commodities into East Africa may be made without license and are not subject t o quantitative restrictions.

- 50 In Kenya, import licenses f o r specified commodities are granted on

while imports of eome commodities are freely licensed, imports of other conrmodltles are not norw y licensed.
t h e basis of variouspolicyconsiderations;

k Tanzania, i n d i v i d u d licensing a p p l i e s t o imports of specified commodities from all CotlPnonwealth countries, all GATT countries, and t h which bilateral trade agreements have been negotiated and A l l other imports from these countries are free of individual l i c e n s i n g and r e s t r i c t i o n s . The import of all goods T r c m 833 other countries is subJect to j.ndividual.licensd..ng.

~%%&?

& U g d a , l l c e n s e s for imports of goods from Japan have been temporaril suspended. In addition, a l l imports from Siuo-Soviet bloc

countries except those with which bilateral trade agreements have been concluded) are Subject t o individual licensing. Individual licensing is applied to imports of specified commodities from t h e s t e r l i n g area CoUtrie and from countries with which Uganda concluded bilateral trade agreements. Imports of these commodities plus some other o r t s frcm a l .other countries are a l s o subJect =to Ind1vidua;l. see Appendix

z7

I I ) .

Payments for authorized imports may be made freely. Advance import PayDLents can be approved by authorized banke at their discretion, but payments by insta,lJm?nts are subject to approval f r o m the -change Control authorities, which agproval is normilly granted. In Kenya a & Tanganyika papents t o a foreign supplier, if he resides in a country outside the sterling area, are to be &e to h i s country of residence, unless the payment is made by crediting an External Account.
80 Payments f o r invisibles

Payments for i n v i s i b l e s t o residents of o t h e r sterling area countries may be made freely. S p e c i f i e d payments to residents of countzies o u t s i d e t h e sterling area c a n be approved by authorize4 banks up to e s t a b l i s h e d limits (see Appendix I ) . Payments f o r i n v i s i b l e s In all other c&ses are subject to approval from the Exchange Control authorities.
Applications f o r all payments f o r invisibles to countries outside the sterling area must be supported by d o C ~ ~ e n t 6 . The Exchange Control authorities usually approve such applications if they are satisfied that no i l l i c i t c a p i t a l transfers are involved.
Bulgaria, Burundi, Czechoslovakia, Federal Hepublic of Germany, Poland, U.S.S.RI and Yugoslavia. A bilateral trade agreement wikh Mainland China has been concluded but not yet rat ified. 2f Czechoslovakia, t h e Federal Republic of Germany, Poland, Sudan, Urn A mR , U . S. SI J 3 , and Yugosiavia.

.
1
B

- 59 Persons proceeding direct from one East African country t o another may take with them any amount of notes in E.A. 6hillingS. Other travelers may take up to an equivalent of EA Sh 1,000 per person in notes expressed i n s t e r l i n g or E.A. s h i l l i n g s and. up t o E250 i n notes expressed in other currencies. Travelers in transit, who are notresidents of East Africa f o r exchange c o n t r o l purposes, may take with them f o r e i g n currency notes and/or notes expressed an s t e r l a g area currenc3 other than East African currency, up to the amount which they brought i n t o East Africa et t h e time of t h e i r entry.

9 .

Exports and export proceeds

Commercial exports axe prohibited by a l l the three East African countries t o South Africa, by Kenya and Tanzania t o metropolitan Portugal and by Tanzania t o d l Portuguese territories. The three countries refitrlct certain exports to a l l ether countries to p r o t e c t wild life and to maintain the standard of exports. From time t o time, export restrictions Eire a l s o applled in respect of goods whlch happen t o be in short domestic cupply.

Kenya and Uganda maintain l i s t s of ccmodities, exports of which a r e subject to Individual licensing. In addition, exports of comulodities whose ~ P a d eis regulated by t h e G t R t e trading organizations a r e SUbJeC+i t o controls. Export proceeds, i n currencies other than t h o s e of sterling a r e a countries m u s t be surrendered t o an authorized bank withln 5 j x months from t h e date of exportation. 1 0 .
Proceeds from
hViSibl@6

Receipts frou i n v i s i b l e s in rurrencles other than those of s t e r l l n G a r e a c o u n t r i e s must be currendered as soon as possible. Travelers coming direct to any of t h e East African c o u n t r l e s from m y other coulltry in the East African currency area vithout touching down at any o t h e r place en route may bring any amount i n East Africm currency notes. Travelers coming from a l l other cour;lries t o any of the E w t African codntrlcs may bring such notes up t o t h e value of Sh 1,000, and other currellcy notes and rman~0 . C paymcnt In unlimited amounts.

1 L . RJ Lateral trade agreements

The East African countries have no b i l a t e r a l paylnenLs agrmnentr3, but they have concluded a number of b i l a t e r a l t r d e agreemento. Kenya has bilateral trade agreements with t w o find member counLrjes ( t h e U.A.L and YngosLavia) and w i t h six nonmember countries (Bulgaria, Mainland China, Czechoclovakia, Hungary, Poland, and t h e U.S.S.H. ). Tanznnla has concluded b1ls;teral. trade agreements with three member countric-.s (Burundi, Federsl Republic 01 Germany, and Yugoslavia) und with five nonmember countries (I3ulg.m is, Main1 and China, Czechoslovakia, Poland, and U.S.S.R. ) e Uganda has entered i n t o b i l a t e r a l t r a d e acreements with

-60-

four F'und mmber countries (the Federal Republic of Germany, Sudnr., U . A . R . , and Yugaslavia) and with three nonmember couatries (Czechoslovakia, Poland,

and U . S . S . R . )
The above trade agreements do not include any b i l a t e r a l payments clauses and provide for settlements in sterling or in another convertible c u r r e n w The agreements further include only indicat'lvc l i s t s of commodities and do not e s t a b l i s h bilateral trade quotas. However, some of t h e ameements i n clude t h e obligation to maintain bilateral balance i n trade which m i g h t resfrick trade between the East African countrieo and their bilateral partners.

Capital traufers and payments from and t o other sterliw area countries are freely permitted by each of t h e Eaet African countries, although controls may be applied In order t o prevent unaukhorized capital transfer8 outaide the sterling area.
C a p i t a l tranefere and payments from and t o countries outoide t h e sterlina subject to controls and t o various r e s t r i c t i o n s .

Authorized banks are permitted to approve s p e c i f i e d capital transfers Up to established limits i n favor of the r e s i d e n t s of countries outside the s t e r l i n g area (see Appendix 11), but transfers i n respect of all other cnipftal t o countries mutside t h e s t e r l i n g area require approval from t h e Exchange Office. However, those funds which are not permitted by the Exchange Control Authorities to be tran6ferred outside the sterling 3rea may be p a i d i n t o 11 Blocked Account

Foreign investment i n East African countries i s governed by t h e m respective investment laws y 1 l j ~ 1 1 apply Cqunl ly to a n y 1nvcl:tor. Under tllLse laws, a foreign n a t i o n a l who has made or intends to make investments in tin Cast African country may apply t o the Minister for Finance for a certiflcutc of an approved enterprise. The Minister m y isoue suck a certificate when he is s a t i s f i e d t h a t the enterprtec would further the economic development of, or b e n e f i t , the country. Such enterprises m y be grantad t a x allowances and part la1 or f u l l . exemption from payment of custom duties. They muy only be nationnlized or compulsory acquired by or on b e h a l f of the Government of the country i n accordance with various c o n s t i t u t i o n a l mfegubrds agtitnst arbitrary expropriation of private property, including; t h e provision that compensation must be paid within a r e l a t i v e l y short period of tune froln t h e d a t e of the t a k i n g over of t h e e n t e r p r i s e .
The hpproved enterpriees may transfer out of the East African country in which Investment was made amounts in respect of net profits; net proceeds, If any, o f s a l e of the enterprise; p r i n c i p a l mid jnterest; of any loans speci f i e d in the o r i g i n a l certificates; and any cornyensation paid under the pravisjon of the respective investment laws

fnveetorri from countrieb outside the s t e r l i n g area who are not protccked by t h e c e r t i f i c a t e of an approved enterprise can make transfers related to their inveetments, subdect t o approval from the exchange control a u t h o r l t i e s .

- 61 Specified foreign (and domestic) investments require approval under t h e t h e ? identical East African Industrial Licensing Ordinances which are admint s t e r e d on an East Africa basis by t h e East African I n d u s t r i a l Councll. The purpose of t h e I n d u s t r i a l l i c e n s i n g on an East Africa basls is t o effect t h e orderly promotion and development of m d u s t r i e s manufacturing or seehlng t o n U u f a c t U e f o r sale, articles in East Africa. Under t h e East African I n d u s t r i a l Licensing Ordinances, an appli, ant for a specified investment 111 East Africa can be granted exclusive monopoly of t h e production f o r a period U P $0 f i v e years after which period supplementary production by W Y new investor i s s t i l l subject t o licensing under ordinance for another 1 5 years

t i e s and shares of companies In Ecst African-countrles. Residents of c a m t r i e s outside t h e s t e r l l n g area may purchase local s e c u r i t i e s only wlth t h e p e r m s s i o n of t h c Exchange Control which grants such permission when a trarlsactlon tskes place on a security market ln East A f r i c a and t h e ~undsf o r purchase 9f such securlt ES are e i t h e r derived from an Ilxternal Account o r are supplled in specri l e d currencies e Income fronl securitles, t h e purchase of which is approved b y t h e exchange control authorities, is remittable IIolrever, proceeds from t h e s a l e of x c h s e c u r i t i e s do not autonlatlcally qualify for r e p d t r m t x o n . Other purchases of shares and s e c u r l t l e s are permitted by the exchange c o n t r o l a u t h o r i t i e s on an ad hoc basis.

- 62 Limits up t o which and terms on which payments f o r invisibles t o countries outside the s t e r l i n g area may be approved by authorized banks

APPENDIX I

I .

Exchange allocation f o r travel purposes

1. The residents of an East n f r l c a n cour,t;ry

For health, business, or official travel, foreign exchange may be obtained at the rate of EL0 per day, a mximum of c250 per application; in case of travel to America, E20 per day with a maximum of E5OO. In t h e case of h e a l t h travel, a l l o c a t i o n is only granted on t h e basis of a recommendation from a recognized prescribing doctor; i n Tanganyika, tk recommendation must be approved by t h e Chief Medical Officer; in cases of emergency the Exchange Control Authorization m a y grant appropriately larger allowances a t t h e i r d i s c r e t i o n . In the Case of business t r a v e l the applicant must be the f u l l y accredited representat i v e Of a businem house in an East African country; t h e r e p r e s e n t a t i v e must be t r a v e l i n g or1 born fide business djrectly connected w i t h t h e export of goods from, or t h e import of goods to, an ER6t African country; t h e expense of t h e Journey must be certified as being met bg the firm represent,ed; the application must cover one pereon only and nL o t h e r person m y be traveling on behalf of the same f i r m or company represented 1 x 1connection w i t h t h e business for which t h e journey 1 s being undertaken.
S p e c i a l t r a v e l allowance may not be issued simultaneously with basic t r a v e l allowance but i n c e r t a i n cases when a person is t r a v e l i n g 0x1 business, banks may authorize up t o E50 of t h e b a s i c travel allowance for personal spending. I n a l l other instances of travel, the Exchange Cantrol rndceb the decisionc.
A travel nr booking agent i n a n East African country may, w i t h o u t inqumy and without formality, s e l l for E.A. s h i l l i n g s o r sterling t o any p e r s o n in the country, t i c k e t s f o r any travel by any means of t r a n s p o r t anywhere i n the world. Travel agents may provide services o u t s i d e t h e s t e r l i n g area, e = g O , hotel accommodation, meals en r o u t e , etc., against payment in E.A. shillings, without f o r m l i t y . The cost of fiuch services does not form a part of the foreign exchange allocation which banks and travel. agents m y provide t u travelers

Inmediately on t h e traveler's return to a n East African country, rzqy unused travelers' checka, e t c . , expressed i n s t e r l i n g and a specified f m e i g n currency in h i s possession must be encanhed a t or offered for sale t o a bank o r t h e a u t h o r i z e d travel agent from whom t h e exchange was purchased.
A person to whom f o r e i g n excharlge has been sold who does not leave Kenya o r Uganda w i t h i n three months should surrender a l l mean8 of payment purchased for t r a v e l purpotwB. (This rcqulsement 1 s not applicable i n Tangtsnyika,)

63

APPENDIX 1

Authorized banks may approve applications b3 r e s i d e n t s who purchased t i c k e t s for nonresidents t o enable them to t r a v e l t o Kenya or Uganda, t o remit t o t h e t r a v e l e r s sum6 not exceeding El5 per head, o r t h e equivalent i n f o r e i g n currency, t o meet incidental expenses en r o u t e . This f a c i l i t y is not provided by exchange c o n t r o l r e g u l a t i o n s in Tanganyika.
2.

Residents of o t k e r s t e r l i n g a r e ac o u n t r i e s

Members of H.M. Forces not resident i n a n East Af'rican country who are not on o f f i c i a l duty m a y be allocated exchange on t h e s c a l e a u t h o r i z e d i n t h e United Kingdom for t h e t r a v e l year i n respect of which the application is made. When such membels are on duty, authorzeed banks may grant travel allowances Up t o such amounts as are s p e c i f i e d by t h e Unit Commander or t h e o f f i c e r
authorizing the posting , C i v i l i a n seamen and c i v i l i a n a i r l i n e p e r s o n n e l m a y be given t h e same t r a v e l a l l o c a t i o n as members of H.M. Forces not on duty.

3.

Residents of c o u n t r i e so u t s i d e

t h e sterling a r e a

tanka may a l l o c a t e t o themexchange for travel i n c o u n t r i e s o u t s i d e the s t e r l i n g area, against payuent in s t e r l i n g from a n External Accoun.1;; and jn Kenya and Uganda also a g a i n s t any foreign currency which i s freely exchangeable f o r s t e r l i n g o r a g a i n s t East African currency notes up t o a maximum of' El00 per person, i n cases of nonresidents who a r e leaving Kenya (Uganda) after a temporary v i s i t , provided t h a t t h e notes were obtained i n Kenya (Uganda) by the sale of f'orelgn currency o r by d e b i t of an External Account

11.

Payments f o r books, g e r i o d i c a l s ,e t c . , t o s o c i e t i e s and clubs

and s u b s c r i p t i o n s

Residents may buy foreign exchange t o pay f o r s i n g l e copies of books, p e r i o d i c a l s , etc., or for t h e payment of an annual subscriptlon for a p e r i odical. Residents may buy f o r e i g n exchange t o pay club subscriptions and subscriptions t o learned and t e c h n i c a l societies provided thaz t h e umount of t h e s u b s c r i p t i o n per annum, including entrance fees, docs not exceed E100. I n Tanganyika, limits are exceeded i n p r a c t i c e a t the d l s c r e t l o n of t h e Exchange Control.

111. Education
Re6tdents IUQY purchase f o r e i g n exchange up t o 1700 p e r scholastic year t o pay t h e cost of e n t r a n c e r e g i s t r a t l o n fees, rnamtenance, and other expenses i n c i d e n t a l t o t h e education in c o u n t r i e s outside the Eterling areo. Fees musL be p a i d d i r e c t l y t o t h e educutional establishment ooncerned. The b m i c travel allowance may be used to supplement any educatlon a l l o c a t i o n authorized. a y be p a i d l o c a l l y i n E A . shillings, b u t m y I n c i d e n t a l expenses Fares m i n c u r r e d i n f o r e i g n currency en route must; be paid out of t h e educational or the basic travel a l l o c u t i o n .

- 64 IV.
Insurance

APPENDIX I

Authorized banks are authorized to make transfers in payment for l i f e insurance premiums provided that :

(a) t h e transfer i s covered by the authority already granted I n respect of nationals of countries outside t h e s t e r l i n g area who are regarded as nonresidents and who are working jn an East African country;

on

(b) the premium is due on an exlstrng p o l i c y (it I s not a first premium new p o l i c y ) ; and
( c ) the policyholder is

not in possesslon or' f o r e i g n currency, exempted

or otherwise.

v.

Ca~nnissionsand expenses due to norlresident agents

Commissions may be paid to agents residing in countries outside t h e s t e r l i n g area in respect of imports or exports from sterling are^ countries, and merchanting trade undertaken by t h e residents of an East African COuntry in &XM%originating outride the sterling areaprovided that coxnuission does not exceed E5,OOO. The limit of E5,OClO i s not applicable in Tanganylka.

VI.

Payment s for advertisements

Transfers may be made in respect of advertising c o s t s incurred i n p3acin(: advertisements i n publications in countries outside t h e s t e r l i n g area. Advertisements should be of b e n e f i t t o t h e country.

VII. Tourist agency fees

Licensed and registered travel agents, safari firms or h o t e l s u t i l i z i n g t h e services of agents i n countries outside the s t e r l i n g area t o o b t a i n boolrin@ from tourists to v i s i t East Africa. m a y remit the egency charges or commissions from such bookings.

- 65 -

APPENDIX I1

Limits up t o which and terms on which specified capital t r a n s f e r s t o countries outside t h e s t e r l i n g area may be approved by authorized banks 1 . Emigration allowances

A n emigrant (1.e a parson who leaves a s t e r l i n g area country t o take up permanent residence in a country outside t h e s t e r l i n g a r e a ) is allowed t o transfer up t o E5,OOO per family u n i t from h i s declared assets as 8 S e t t l i n g in allowanc3 to t h e i r new country of' residence. The emigrant's assets which exceed the amount which is permitted t o be transferred as a settling-in d 1 O W ance, are t o be blocked. h i g r a n t s are not e n t i t l e d t o a basic travel allowance. However, authorized banks and authorized travel agents may provide UP t o t h e equivalent of El00 per person i n foreign currency notes o r t r a v e l e r s ' checks valid f o r the External Account area*

.,

11. Legacies
Ganks in a given East African country may approve applications from residents of this country t o remit t o beneficiaries resident outside the s t e r l i n g a r e a capital payments arising from promissory or resjduary bequests o r inheritances under the Wills or Intestacies of persons who, a t the date Of death, were resident i n an EastAfricancountry. I n t h e case of Kenya and Uganda the requirement is t h a t the date of Probate or Letters of Administ r a t i o n was subsequent to May 12, 1940.

Reuidente are permitted t o make cash g i f t s t o individuals and organizations i n any country outside the s t e r l i n g a r e a up t o E50 i n the case of Kmya and Uganda and up t o E250 i n the case of Tanganyika, i n total during the y z a r ending December 31. A resident m y send a gift i n kind up t o t h e value of El00 without approval.

IV* Family remittances

A resident ( i.e., any person who has lived in a 1 1 East Afri can country for over five years) who is the head of t h e family u n l t may send from Kenya and Uganda t o countries outside the sterling area remittances notexceeding E15 per month for cne person and E25 per month f o r two persmo, and m y be approved by authorized banks for R period of twelvc months, provided that:

(a) t h e beneficiary has drawn no basic tratel allowance within the previous twelve months;

1/ In t h e case of T : ngnnyiha, the limit is E30 per month, independently of a number of beneficiaries.

- 66 ( c ) t h e remittance is to be made to

APPENDIX 11

(b) the beneficiary does not receive financia; a i d from any source i n the sterling area;

relieve personal financial hmdship

of close reletives, such as parents or parents-in-law;

(a) the application is supported by acceptable and satisfactory docurnentary evidence of hardshlp

A n y application to continue the remittance a f t e r each twelvelmonth Period should not be approved unless it is re-established to the satisfaction of the bank that the beneficiarys circumstances are such that the renewal is necessary, In Tnnganyika banks grant agproval liberally.

Persons who are residents for l e s s than f i v e years m y tranofer money accumulated as savings. This facility i s interpreted l i b e r a l l y i n Tanganyika.
n b

Remittances by nationals of countries outside the sterling area

National8 of countries outside the s t e r l i n g area who w e emplayed in an East African country m a y make remittances on the following conditions:
(a) they have resided In the country f o r less than five years;

( c ) the remittance does not exceed 5 0 per cent of the actual monthly

salary (maximum El50 per month) of the applicant, who should be t h e head of the household;
( d ) there m a y be only one resittancc from each f a m d y u n i t ;
(e) remittances may o n l y be made t o

the applicant I s country of o r i g i n

or 11ermanen-t; residence; and

(f) no application should be approved for more than twelve months at a time; montihly remittances may not be accumulated.

VII. Personal remittances by nonresidents upon f i n a l departure

from East Africa
A n a t i o n a l of a country outside t h e s t e r l l n g area, employed ( n o t sclfemployed) in an Fest African country and s t i l l regarded as a nonresident, (i.e., residlng less than five years in an East African country) who i s leaving East Africa f i c a l l y to t a k e 11p permanent residence i n h i s country of o r i g i n , but who doeo not apply for eaigration treatment, may transfer the balance of h i s personal savings, provided t h a t t h e 3u.n to be transferred does not exceed El,000 or 50 per cent of t h e applicants t o t a l enoluments earned during his period of employment in an East African country, less the t o t a l of a l l sum remitted to countriee outside t h e s t e r l i n g area by him during t h a t time, whichever is the leseer amount