The East African Community (EAC) economic integration has gained momentum recently, with the EAC countries aiming to adopt a single currency in 2015. This paper evaluates empirically the readiness of the EAC countries for monetary union. First, structural similarity of the EAC countries is measured in terms of similarity of production and exports. Second, the symmetry of shocks among the EAC members is examined with structural VAR. Both methods point to a low shock synchronization in the EAC, suggesting that the move to EAMU would need a thorough evaluation and preparation. The paper concludes with policies that would facilitate the EAC regional economic integration, including the possible eventual establishment of a monetary union.

The East African Community’s (EAC) economic integration has gained momentum recently, with the EAC countries aiming to adopt a single currency in 2015. This article evaluates empirically the readiness of the EAC countries for monetary union. First, structural similarity in terms of similarity of production and exports of the EAC countries is measured. Second, the symmetry of shocks is examined with structural vector auto-regression analysis (SVAR). The lack of macroeconomic convergence gives evidence against a hurried transition to a monetary union. Given the divergent macroeconomic outcomes, structural reforms, including closing infrastructure gaps and harmonizing macroeconomic policies that would raise synchronization of business cycles, need to be in place before moving to monetary union.

Private sector investment opportunities in Africa’s infrastructure are huge. Regulatory reforms across African countries are identified as critical to the realization of the expected investment flows in the infrastructure sector. However, planners and policy makers need to note that there are infrastructure deficiencies in all subsectors with low income countries (LICs) in Africa facing the greatest challenge. Inefficiencies in implementing infrastructure projects account for USD 17 billion annually and improving the capacity of African countries will help minimize these costs. In this regard, the donor community must play a greater role in African LICs while innovative financing mechanisms must be the focus in the relatively richer countries of the continent. Traditional sources of financing infrastructure development remain important but private investment is critical in closing the current gaps. Countries need to devise mechanisms to exploit opportunities and avoid pitfalls in investing in infrastructure.

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