DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC US€

,

COmINs CONFIDErnIAL INI?OMTION

July 16, 1965

To : b', lers of the Executive Board

From: The Sccre t ary

SubJect: 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 'a8 been prepared as background for t h e 1965 Article X N consultations reports on t he three East African countriee-- Kenya, Tanzania, and Uganda. These reports will be ocheduled for consideration by the Executive DLreators before the infcrmnl Board recess

Rtt: (1)

Other Distributiou: Department Heads Divlsion Zhlefo

s < DOCUMENT OF INTERNATIONAL MONETARY FUND AND NOT FOR PUBLIC USE I

I

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

Introduct ion

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 the Fast African Comon Services Organization, which controls and adminismrs major t r anspor t a t ion and communicat!ans f a c l l i t l e s , ce r t a in f i cca l , r e sea rch and stat is t ical services, and the East African Currency Board, which issues the common currency, the East Afr ican shi l l lng, provides llmited c e n t r a l e banking sw?vices, and mantlges t h e common reserves. An i n f o r m 1 customs union formed by the three countries har resulted i n what is commonly known as the 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 ree ly . The trade and exchange controls vis-&-vis countries outside t h e area are bas ica l ly similar.

Tn order t o avoid lengthy r e p e t i t i o n s i n the 1965 Art i c l e XIV consul- tations reports on these countr ies , t he present paper has been prepared t o describe these comon features. It is divided i n t o four sections:

I. East African Comon Service8 Organization

11. East African Currency Board

111. East Afr ica ' s Etllence of Payments

IV. Trade and Fkchange Cont roh in Eaat Africa

- 2 -

I. East African Common Services Organization

1, HxstoricaJ background

The present system of cooperation between Kenya, TanganyLka and Uganda has developed gradually over t h e p a s t half century, It began w i t h t h e format ion of a joint custcms union between Kenya and Uganda in 1917. In 1926, control of t r a n s p o r t services owned by Kenya and Uganda was vested in a single author i ty end a conference of' t h e Governors of' Kenya, Tangmyika and Uganda established machinery for secu r ing 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 the Second World W m , when a number of organ iec t ions operating on an Uast African basis was es t ab l i shed .

In 1948, following propoee;ls put forth 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 Legisla- t i v e Assembly and an execut ive vrganizaticn was established, The High Ccmmjsslon was responsible for the J O ~ % administration of var iouc GerViCeS in t h e three countries. The 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 wi th t h e s e Services. However, no b i l l could be introduced in the AsGembLy wttl-out the prior approval of t h e High Commission which &so had the power t o refuse assent t o any b i l l passed by the 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 execu- tive o f f i c e r s who acted as i ts official advisors in the 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 provided by t h e High Comiss ion included t h e c o l l e c t i o n and admin i s t r a t ion of custcms, exciGe and iccome taxes, running of rail- ways9 harbors and c i v i l aviation, and provision oi' post and telecomunica- tiom. These aerviccc were d iv ided into two groups: the "se l f -conta ined SPrViceR" which paid t h e i r way and the "nonself-contained services" which were prmcipa l ly financed on R current, basis from funds received from t h e three East Afr ican Governments and g r a n t s from the United Ktngdom, includLng t h e Colonial kvelopment and Welfare Funds.

An Economic and Fiscal 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 achieve 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 bmis .

The Coxmiscion proposed removal of the remaining impedinents to i n t e r = t e r r i t o r i a l trade and the es tab l i shment 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 the t e r r i t o r l e E . It further recommended thut 50 per cent CJf these payments to the pool be earmarked fo r t h e High Commission*s nonse l f -conta ined services snd that the other h d f should be equally

I - 3 =

d i s t r i b u t e d among t h e three terr i tor4.e~. This la t ter rccommendatlon had the e f f ec t of redis t r ibut ing revenues frcm ccmpany taxes and CustcrIlls and excise dut ies ir, favor of TanganyFka and Ugaada. In keeping with the rccommendatlon, the Distributable Pool came into operation on July 1, 19610

In anticipation of t h e independence of Tangalma, Kenya and Ugmda, t h e Brit ish Government convened E , conference of' po l i t i ca l l eade r s and of f ic ia l s of t h e three countries as well as the High Comlssion in 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@mmOn Servlces Organization (EACSO) s e t up t o replace the East Afrxan High COIWIILSS~O~. The contracting governments agreed t o Inc ream if necessary their contribution through the Dlctr-l?,utable Pool W d , t o finance the efficient oFeration of t he Organization and t o assume f inancial responsibi l i ty 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 lgh t t o terminate its part ic ipat ion at any tune by giving not less than one year's notice. Mdif'ication of the agleement may be made with the consent of each of the contracting governments.

2. Administrhtion of the Organization

The UCSO, formally established on kcember 1, 1961 , was authorized t o adminlstcr on behaU of the 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

measures with respect t o cer ta in , Lpecifxed matters t o which l eg i s l a t ive effect muy be given i n the three countries. The Organization may wind Up any Gervicc Rdmjnistered by it and may esbablish advisory cr consultative bodieE i n respect of any other services. The principal scheduled common services m e :

which might be of commn interest t o the three countries and to enact

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 Ikser t Locust Survey The East Mrican Customs and Excise Cepartmeut The East African Income Tax Department me East African Reserlrch Services The Eutst African Office i n Londori The East Afr ican Indus t r ia 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 ? -%hxz African High Com~ission, had i n t h e past received some of i t s services on an agency basis, and sent

a an observer t o the Conference.

- 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 Afr i can 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 presen t of the Vice P r e s i d e n t s of Kenya and TanGsnyIka ~ n d t h e Prime Minister of Ugancle, and nas r e s p o n s i b i l l t y for, and the genera 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 Orcyaizat ion. The decisions of the AxLhority m e ar r lved at by the Urn- mous vote of i ts members. The Author i ty appoints a Secretary General of t h e Organization who is the p r inc ipa l executive ofricer.

The Authorlty is ass'lsted by various M1nisteria.l Committees ( the 50- called t r l m i r a t e s ) each of which consists of one member (a Minister) from each par t ic ipa t ing country. At present there are f ive such Ministerial Committees: the Financial M i n i s t e r i a l Cormnittee, the Communications Ministerial Corn i t t ee , the Com.merci&l. and Industrial Co@rdlnations bHaisteriai Co:rmlttee, tke Tabor bIinisteria1 Cornittee, ~ r . d the M i n i s t e r i d Cornittee In cher;ZP of Reseerch and SociRl Servicec.

The Authori ty 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 Its services or ?'unctions subject 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 tee, on the one hand, and t he General Manager of t h e Railways and Harbouss Administration, t h e Postmaster-General and tile Chairman of the E a s t Mrican Airways Corporation, on the other hand, in their respective meas of adminis t ra t ior , , the issue m u s t be referred t o t h e Authority for final. declsione The A u t h o r f t y may direct t h e holding of Joint meet ines of various rninist1~r3.d convnlttees t o ensure the necessary coord ina t ion of their act ivl t les-

The Organization, l ike i ts predecessor, has a Legislative body cal led t h e Central Leglsletjve Assembly. It consists of a speaker appoultcd by the Authority alld 44 mmbers consisting of the 15 members of the f ' l V e 14inisterial Committees, nine members f r o m each of t h e pa r t i c ipa t ing COUII- tries 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 the Secretary General and the Legal Secretary of' the Organization- All questLon6 proposed f o r decision i n t h e Assembly ale determined by a m n J o r l t y of the v o t e s of the members p r e s e n t and voting. Tne Asselnbly, however, is not au thorued to in i t ia te bil ls imposing any changes on the Organization. A b i l l passed by the Assembly m h s t be msented to by each of' tlhe East African governmcnt~.

- 5 -

General. Fund which receives its revenues principal ly 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 he Raisman Report. The purpose of the a r r aemen t was t o assure nonse1f"contained services fit' a reliable and steady source of revenue and to d i s t r ibu te cont r ibu t ions by the Participating goverrment E t o t h e budget of the Organlzatfon, according t o the f inancial strength of each of the participating countries*

The Distributable Pool Fund receives as its revenues 6 per ce the custcms and excise taxes, and 40 per cent of the company taxes lected by the Organization on behalf of the three governments, plus cm3Xd.n other minor mounts from miscellaneous sources. The Pool's share i n t m CoUections is determined on the basis of revenues net of the Costs Of conect?.on of taxesI The three governments also reimburse the &gmlzation for Costs of collection of taxes, which mounts are credi ted to the €'OOl* The latter amount plus one half of the Pool's receipt from taxes i s sub- SeqUelltly credited t o t h e General Fund and the remaining one haJ.f is Paid back t o the three participating governments i n equal shares.

In 1962/63, the Distri lmtable Pool Fund received E4.87 million 86 its share of company tax, customs and excise duties; uf t h i s amount E - 4 4 m i l k o n Was credited to the General Fund and the balance was paid to the

from the countries U.59 min ion b e h g the assessed cost of tax co2leCkiOn* Pmticipat ing countr ies in equal Shares, The General Fund a l s o received

4. Servjccr; provided by FACSO

The self-contained serviceo provided by EACSO comprise the 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 sher ies , c ta t l s t ics , law and order, and soc id s e rv i ces Luch a6 health, education, etc. In 1963, the common services eruphyed Gome 50,000 persons and paid out newly E22 milliorl in

' 1/ These twdo are levied on the income of manufacturing and finance """

companies operating in East Africa,

- 6 -

(In millions of pounds)

Distributable Pool Fund's share of collec- tionrl of revenues from:

Customs and Exclce

Company tax taxes

Total

Less t o t a l refunds to particlpating govern- ments (-)

1.19 1 a 0 7

2.26

-0.76

Net contributions by partfcipating countries to General Fund 1.50

Per cent contrlbuted by each government 46.7

2 -66 1-09 1.21

-0 . 76

1.18 1 a 2 3

1.81 0.33 0.36 0.42 0.38

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, 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 to E 42.3 million and E 42.7 million, respectively. In addition, the three services incurred a capital expenditure of E 5.1 million during the year. Railways and Harbours Adrniniatration, w i t h recurrent revenues and expenditures in 19G3 of E 27.3 million and E 28.0 million, is the largeot enterprise among these administered by the EACSO.

s;/

This does not Include capital proceeds of the self-contained servicee, the relevant data for which are not readily obtainable.

.' - 7 -

Table 2. Composite Budget of Common Services 1;/ (In thousands of pounds)

?&venue Expenditure

Railways and Harbour8 Current Cbpital II 3,956 -

Subt ot a1

Post and Telecammunlcat ions Current Capital

Subtotal

Airways Current Capital

Subtotal

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

27,315

7,453 - 7,453

7,623

42,391 1/ 7,042

31,941

7,187 402

Grand t o t a1 49,433 54,849 - Source: Data obtained durlng consultations.

1/ The financial year of nonself-contained services is the mne as t h a t of par t ic ipa t ing count r ies , i . e . , J u l y to June. The financial. year of t h e self- contained oervicea coincides with t he 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. 9 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 mill ion, up E 2.0 mil l ion from 1960/61. O f t h i s amount, E 1.4 mill ion (20 per cent) was received as grants from foreign (mainly U.K. ) governments end organizations. Most of the balance was supplied by the par t i c ipa t ing governments through the Distributable Pool Fund. I n 1963, expenditures on provis ion of economic serv ices ( i.e , meteorology, aviation,

. - 8 - '.

0 agriculture, forestry and fisheries, statistics) accounted for 29 per cent of the total, general services (Including defense) for 27 per cent, recurl'cnt f inancial 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 he years.

Chart I shows the geographical distribution of the common services.

CHART I

Geographical Distribution of Common Services

-

I FRESHWATER I

- 10 - 11. East African Currency Board

1. Historical background

The East African Currency Board (EACB) was established in Decenhx- 1919 to provide currency for the Kenya Colony and Protec tora te 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 the 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 pro- tectorate of Somd.iland. A t present the 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 issued 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 he auantlty of currency in clrculation which was d e - terminea by changes in the balance of mayments positLon af the canstitucnt territories. The Board or the colorliai authorities could therefore not """ " " - " - " " I " I- """ - At the rate 01' EA Sh 20 to E stg. 1.

1 .

a follow an mdependent monetary, credit, or balance of payments policies . It had some discre t ion in the- selection of invetkments-provided the secu r i t i e s chosen were gll t-edged public securlt ies expressed in a s t e r l i n g area currency other than i ts am, and easily d~sposable on the London market. It d id not invest i n loans issued by the au tnor i t i e s of t h e cons t l t uen 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 dea l t almost exclusively wlth t h e commercial banks operating i n t h e East African currency area.

A t the outset, the East African Currency Bmrd was faced ui th con- s lde rab le d i f f i cu l t l e s In i t s attempt t o replace t h e Indian s l l v e r rupec which circulated 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 to rep lace these coins arose primarily from their fh.IctuQtlng value which followed the changes In the silver prlce. But, whereas the West African Currency Board af ter i t s egtablishment in 1912 had been able t o r epa t r i a t e t he British silver coins formerly circu- lQtinfZ 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 Gover t~en t s of' India and Germany. It had no al ternat ive but 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 data on t he currency in clrculnt ion, the currency reserve f'und, and the extent to which the currency wa3 covered by t h e reserve fund, It was not until 1950, more than 30 years after the esta- bllshment of the East African Currpncy b a l d , 1,ba.t; the rccierve fund t-:n07~ll%td to more than 100 per cent of the currency in c i rcu la t ion . The low point vas reached i n 1932 durlng the Great Depression when currency i n c i r c u h t l o n h a d f a l l en t o E3.6 r n i l l m n and vas covered by a reserve fund of less than EO. 4 million, 1 .e., about 10 per cent , Part of the gap beforc 1950 between the 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 ake up equivalent s te r l ing loans in London. The consideruble increase .in currency between 1941 and 1945 was the result p a r t l y of t he much l a rge r area i n which khe East African shilling circulated, 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 irst departure from the U C U ' s role as a purely automatic money changer, for i n t h a t year It was allowed t o hold securltier; of its const l tuent terr l tor ies . Thus, w l t h l n the limits for the f iduclary issue set 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 the const i tuent t e r r i t o r i e s 0

- 12 - Table 3. Movements of East African Currency, 1925-55

(In miliions of pounds)

Year ending June 30

Currency Currency Percentage outstanding reserve fund cover

1925

1930

1935

1940

1941

1942

1943

194b

1945

1946

19b7

1948

1949

1950

1951

1952

1953

195b

1955 -

Sources t

5.6 2.4 b3.6

4.7 1.3 27.9

4.3 1.3 30.2

6.9 3.7 54. 0

8.2 5.1 62.1

14.1 11-0 78 03

21.1 18.2 86.0

24.8 22.5 YO- 7

28.4 26.6 93.9

24.5 23.4 95.4

24.b 23.6 96.8

23 e 8 23.2 98.1

27.2 26.0 98.3

29.6 29-9 101.2

39.4 39 09 501.3

03 b6.5 96.2

48.6 50.3 103 6

53 a 3 57.6 108.0

60.b 61.8 102 03 "

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

= 13 - e

i n t h e form of holding government or government-guaranteed securxtles t o the mtlximum of E10 million. The first such loca l lnvestment by the EACB tfas i n s e c u r l t i e s issued by Kenya and holdings a t the end of June 1956 mounted t o Fil91,OoO at nominal value. In the following year a U three mainland terrltories took up long-term loans frcm the EACB and the amount atdtaxrding at the end of June 1957 had risen to Ej .8 mlli ion (sec Table 4) a

In December 1957 the regulations were again amended and the maximum limit of fiduciary issue by the EACB WRS increased t o E20 mlllion, Total lending on June 30, 1958 had, however, not cxcecded ,~6.3 uJ.1ibn. A year later clams by the EACB on the governments of t he cons t i t uen t t e r r i t o r i e s had climbed to ~8.9 million including the f i r s t lssue of securities by Eden amounting t o E0.g miuion,

In 1959 the EACB was authorized to acquire local Treasury b i l l s (within the specified limit for fiduciary issue t o governments), and thl:s

provide short-term finance for the 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 E2.3 million and EI.6 million were for the account of Uganda and the remainder f o r Tanganyika The t o t a l f iduciary issue (i.e., Treasury b i l l s and longer-term secur i t ies ) a t June 30, 1960 amounted t o ~13.1 mi] l ion , i. e, , E6 3 million below t he authorized maxlmum.

3 . Reconstltutlon In 1960

I n ant ic ipat ion of independence of the various constituent terri- tones , the Board WCLS reconstituted in 1960, enlarged from *'our members to seven, and Its seat was transferred from London t o East Africa w9th i ts head offl ce i n Iiairobl. Instead of comprlslng Brrtiah Government repre- sentntives from the Colonial Offlce, the Treasury, and the office of the Crown Agents, as i n the past, Its new members were now the 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, the 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 actual management was now in the hands of representatives of t he member govern- ments, and the day t o day direct lon 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 Lircles, the Board was now i n a b e t t e r pos i t i on t o t a k e a more act ive 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 g t o venture i n t o new directions and t o undertake functions ~n the monetary field which are

!Cable 4. EACB: Flducrary Issue t o Mvermn & (In millions o i pounds)

I[a_lun

Mal taken qp

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

!&!!!!E Total taken up

Total available o f which: Treasury bills

&!0s!E Totel W e n ug

Total uvallablc o f which: Treasury bi l l s

Z W ! b W "

Total taken up

Totsl rvairnle of which: Treasury b U e

- Aden

Total taken up

Total available of which: Treasury bi l l s

Esat..AfYican Currency Board

Wtal fiduciary isarle: Government of which: Trsaeury bills

lbtal fiduciary irsw to Qovsrment authorized -

lourco: Re~orts of the Eaat African Currency Board,

Inca at eoet , b i l l s at aominsl value.

. - 15 - 0

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 su f f i c i en t l ega l basis f o r enlarged action. It explored ways in which i ts lending t o the govern- ments could make %he greatest cantr ibut ion. It star ted crop f inancing f a c i l i t i e s with the dus l aim of promoting exports and of ac t ing 8 s a banker of Iss r e so 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 for the commercial banks, thus introducing a mult i la teral z lear ine; system between the banks. I n order t o mprove currency distribution Over t he whole t e r r i t o r y of the currency area, t he Board opened 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 affected by a climate of p o l i t i c a l and other uncertain- ties. These led to an outflow 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 the end of June 1961 had decreased by El12 millic.? as compared n t h t h e end of June 1960 (see Table 5 ) . This decrease would have heen 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 led t o a considerable deter iora t ion i n t h e h q u i d i t y p o s l t i o n of t he ccmmercial banks. In o rde r t o r ed res s the s i t u a t ~ o n t h e commercial banks r a i s e d t h e n minimum lending rate to 7 per cent in Ju ly 1960 and t o 8 per c e n t i n October of the adme year. During 1961/62 notes and coins i n c f r cu la t lon decreased by only El.4 milllono

The general downturn in econcmlc a c t i v i t i e s also had t he effect of 0 reducing government revenue. The governments, therefore, had recourse 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 pas t . A t t h e end of December 1960 the Board's holding of Treasury bllls amounted t o E4.? mill lon of' which almost €2 .O million each was issued by Kenya and Tanganylka. By February lgGJ, the t o t a l renlalncd roughly the same, but the borrowers had changed. The Board*s sho;t-term c la im on the Govern- ment of Tanganylka had risen t o E~.G m i l h o n , It held no Kenya Treasury bi l ls , and I t s short-term claims on the Government of Uganda had r i sen t o almost E1.7 mill ion, By end June 1961 TreasurJ bj 11s mad2 up only E2,8 mill lon out of a to ta l f lduc lary i s sue of ~12.8 mlll lon, but a t the end of 1961 they had risen again to ~ 6 ~ 0 mlllion. I n lending t o t h e govern- ments the Board a l loce ted the 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 lmlt of the authorized fiduciary issue t o the governments for exccptlonul demands and other unforeseen contingencles a s t r c l l as for recllscourlts of Government securitles or Treasury b i l l s held 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 the Board before issuing bonds or blUs.

1/ Part of the decreare ,tab due t o the wlthdraml of East African shill Lngs from t h e former l3 r l tu .h Pro tec to ld te of Soma1 l l and i n 1961: EO. 6 mil l i o n vas Jithclrclwn before June 30, 1961 and EO, 2 million in July 0 and August of 1961.

.I. 16 -

Table S r . EACB: Sigh* Liabilities and Currency Reserve Fun?

(In milllokrs o f pounds)

Currency Currency&/ Total currency Deposits Currency outside held by i n bY Reserve banks banlcs circulation banlcs Fund

1957 1958

June June *Tune June June JUne Mar. I

June Sept . bec. Mar. June

Dec. Mar. June Bept . Dec . Mar .

Sspt a

53.3 56. I.

9.6 0.2 6.9 5.9 6.1 5.9 4.6 3.2 5.2 3.6 4.8 4.3 5.1 4.4 4.1 4. 3 6.2

5.7

... 4

60.7 60.7 58-7 57.3 60.4 59.2 61.8 57.8 63.0 68.0 69.5 65.5 71.9 75.7 72*3 68.3 75.6 79- 8 76.0

””“”_ ~ ”” ~

Sources: ?worts of t&$,.rst;AE_r~;~ Currency Bosrd and data supplied by t he EACB author it ies .

Includes currcnly held by comerc i s1 bankb i n Aden which i D not separately available f o r all data. It nmounted to CO.6 m r l l u n on June 30 In 1962, 1.963, an2 1964.

- 17 e The Board searched for an equitable formula t o be used In the shming

of t h a t par t of its prof i t s tha t it intended t o dis t r lbute to the member gmernments. It tras thought t ha 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 es tmates of currency circulation i n t h e remainmg f ive 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 tend- tories were allowed freely ~mnd had taken place on o. large scale * It was therefore found more pract lcal 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 the Board's p ro 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 profi ts , bu t was also used to determine each govern- ment ' 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 in 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 State for permlsslon t o discount and rcdlscount bCLs and other approprmt instruments isswd i n connection with the marketing of specifled crops. 9 These new polrem were granted t o the Board, provided tha t t h i s type of financlng 1Joud.d not

u5.0 rnilllon But ~n 19601'61, rather high ad valorem stamp dutles On crop b l U s i n the constltuent territories operated as a dlsincent lve 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 ma le , 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 Ln cotton poduc t ion iAl

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 the banklnE oyLltern.

exceed E5 million nor increase the total fiduciary issue t o more than

It 1s worth mentioning tha t t h e Board declded not t o apply any t e r n - tonal divis lon of i t s crop f lnanc lng 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 , It vas mportant LO influence t he over-all l ~ p ~ d i t y pos i t ion of the corrmercial banks rather than 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, be ing harvested and processed, Lmits [ere, ,lowever, placed on the lrldiVidLmL conunercial banks,

1/ Coffee, tea, cot ton, sisal, cloves and. pyrethrum. It was made c l e u tha; this l i s t could be expanded t o include other crGps, i f needed,

- 18 -

Table 6 . a EACB: DistrlbutAons to Governmento Out of Board's Tncomeg

(In thousands of pounds)

Year British Total ending Tnngan- Soma- for a11 June 30 Kenya Uganda yika Zanzlbar Aden liland countries

50.6

44.2

66.7

151.3

130 5

140.3

215.4

342 . 2

345 -6

347.8

347.6

563.3

563.3

" 633.7

5.3

7.7

10.8

17.1

29.0

18.3

27.3

45.5

45.4

43.3

$11 .o

70.0

70 .o

78 - 7

511 5 -

"

2.0

3 . 4

5 a 3

6.4

7.1

10.9

17.5

22.5

24.6

16.0 "

"

" - 115.4

130.0

1.50 0

250.0

TOO. 0

500.0

503.0

750.0

1,250.0

1,250.0

1,250.0

1,250.0

2,000.0

2,000.0

2,250.0

14,050.00

Sources: Reports of the East AfrLcan Currency Board.

1;/ The distribution is for the years indicated, but payment 15 usual ly "- "- * .-

effected m t h e folloving ycar.

Table 7. EACB: Crop Financlne

(In thousands of pomds)

- - -

1961 1962 1963 1964 Macle Out s t anding Nade Outstanding Made O u t standmg Made Out st andlng

avai lable at end available at end available a t end available a t end c lu ing month of month during month of month during month of month c l u i n g month of month

Jan.

Feb . Mar.

Apr . May

JUtl€!

July

Aug . Sept

Oct ,

Nov ,

Dcc .

~~

I, 650 1,200

1,000

"

"

1,650

200 I I- U I

"

"

"

"

" " "

"

450

63

"

450

226

226

200

200

"

50

750

"

226

450

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

Amounts not lnade available a

To make borroalng by the commercicl banks f lm the central i n s t i - tution more attractive, the Board, In May 1962, lowered its discount rate forb crop finance bills fram 7 per cent to 5 1/2 per cent (see Table 8) . It justified thl action by indicating that it did not wish to impose a "penalty rate" 3 1 for crop finance. At the sane time the Board made it clear that It would see that the funds obtained fram the Board were used by the commercial banks for t h e f inanclng 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.

The Ward's rediscount rate for Treasury bills or similar b i l l s of the gcwernments remained at 1/2 per cent above the current terrder rate. The latter was 1/8 per cent below the London Treagury b i l l rate and moved during the period accordlng to the fluctuatlons i n tha t rate. In 1961/62 rediscounted Treasury b l l l s reached E350,000.

In May 1362, the Board made the first change in its exchange com- missions since 1946. For 16 years the rates for both issues and re- demptions 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 ts 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 export proceeds and to encourage the Inflow of private investment capital from abroad. The Board a lso made it known that it would henceforth reserve the r igh t for itself to deal in the exchange market. The commercial banks followed the Board i n reducing their charges to the publlc.

The considerations that had caused the Board to change its com- missions and to favor inward 1-emi ttances dld not, however, apply t o Aden. There the exchange market had remained broadly in balance, and the re- quirements of s t e r l i ng were matched by sufficlent demand for East Afrlcan s h i l h n g s . It was therefore not necessary to introduce any changes and the equal usue 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 transfers 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 signs that a general revival of confidence in East Afrlca's econcxnfc potentlal hAd occurred. Investment showed some increase, and higher commodity

~~ ~ ~

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

Year

- 21 -

Table 8. EACB: Rates of Interest and of Exchange Conrmissions

(In per cent)

Exchange commissions Rediscount Rediscount

rat e rat e Treasury b i l l s rate for buying selling rate for and advance

crop financing

1955 June

1960 June

1961 June

1962 June

0 ls64 Nov,

" "

" "

" 7

1/2 per cent 5 112 above the local 5 1/2 tender rates 5 1/2

a * * * 5

Sources: Reports of the 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 for transfers from East Africa to Aden.

- 22 - prices led to larger receipts frcm abroad. showed a steady rise of 13 per cent between 4 per cent in the follcwing year (see Table

Total currency in circulation June 1962 and June 1963 and of 5). By January 1965, it rehched

an all-time high of E8O,5 miLion-before a seasonal decline set 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 E20 mill ion to E25 million and again in the fall of 3964 to E35 m i l l i e n , bringing the moximrm limit for the 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 ac 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 to 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 Bard's holdinss of Treasury b i l l s are usually higher at the end of the year when the commercial banks are less 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 bi l ls 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 Govern- ment 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 consultntion and careful consideratlon, the Board permitted t h e Government of TaGzania to exceed Its al lotment 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 the maximum limit of the flduciary issue to governments in October 1964 frGm E25 mil l ion to E35 mllhon brought TanzaniH back w i t l u l *he permissl- b3.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 contr ibute 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 guvclrrn\er l t s the f 1 n ~ n t - ~ a l resou~ccs needed t o sub~cribe to t h e Bretton Woocls insti tutionc. On August 23, 1962

. .. ' . i . - 23 .. a it allocated for t h i s purpose E l . l mill ion to enable the Government of

Tanganyika t o discharge its obligations. Cn the same day, the Board s e t aside in a t ru s t fund comparable amounts for the other governments so that they would be able , in the future , to pay their subscriptions to the IMF', 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 this purpose, made avail- able t o t he governments El.1 million each for the payment of t h e i r sub- scriptions. A second t r u s t fund was established t o provide for the subscription8 by the Board's member governments t o t h e African Development Bank.

The Board further strengthened i ts relations with the commercial banks in th ree main areas: the Board's crop financing facilities, re- diccounts of Treasury bi ,Us for the 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 Board was now vi l l ing t o accept promissory notes of the banks' custonlers as security for advances t o t h e banks and, 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 .

0 The Board changed the ra te it charged f o r rediscounts and advances i n connection with crop financing i n November 1964 frcm 5 1/2 per cent t o 5 per cent (see Table 8). It i s s ign i f icant tha t the Board made t h i s decision a t a time when rates were moving 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 the Board t o banks for crop financing rose from E0.6 mil l ion a t the end of November 1964 t o E3.2 million a month l a t e r . But even 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 wi th crop financing. The fac t that no greater use has been made by t h e c m e r c i a l banks of th 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 for the 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 f iduciary issue, the mWtS of rediscounted Treasury b i l l s were rather small, but the Board attached considerable importance t o i ts readiness and Elbility to ac t a s lender of las t resor t i n t h i s my . The rate at which the BOFIYJ. stood r v a d y to re- discount Treawry b i l l s rema,ined unchanged u t 1/2 per cent above the tender rates i n the consti tuent terri tories.

During 1962-64 the number of bank customers of the B o a r d increased and the operations of the banks' clearing settlement accounts with the hard expanded. The Board had made it known that no commercial bank with an office in one of the capitals of the three mainland territories would obtain any service frm the Board other than that available to the general public unless it maintained an account with the Board. The EACB of f icmls thought that , for the sake of more eff ic ient banking operations, some comnercial banks could have made more intensive use of their accounts with the Board.

The Board saw no need to alter its general commissions on foreign ex- change operatiom when a temporary spurt i n outflaw of funds occurred i n early 1964 in connection w i t h political i nc iden t s . Up until November 1964 the charges remained unchanged at 1/8 per cent for 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 sterl ing. Throughout the 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 "campen- sation market" less at t ract ive. By charging lower rates t o the banks on certain operations, they, i n turn, were able to reduce their charges to their customers for transactions amounting to E100,000 or more. This increased the amaunt of exchange transactions handled through the banking system and reduced "compensation arrangements" . On November 25, 1964 the Board increased i ts 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 under- taken i n response to the ra is lng 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 to reduce the a t t r a c t i o n of higher ra tes 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 tne 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 the banks were authorized to hold coins (not Notes) on behalf of the Board. These measures eliminated unnecessary shipments of corns to t nd frm Nalrobl and thus held down some of the Board's costs.

During 1g64 the Board used its influence t o keep the tender rates for Treasury b l l l s issued i n the East African capitals frcm fa l lowmg too closely the rates In London. The Board's a l m was to allow day to day chenges to be rehted to those In the London market, but it did not wish any automatic l m k by whxh successive sharp rises i n the London rates as a result of changes in the bank rate were followed in EHst Africa. This policy l ed to parallel moves of the rates in London and Ea st Africa but st an increasingly wide spread. The maxlruum local rate In early 1965 was 4.40 per cent.

Table 9 shows the composition of the Board's a8se is While the praportjon of sterling assets out of total investments varied around 84 per cent during the la 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 ive years grew frcn 79 per cent in 1961 to 95 per cent i n 1964. me 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 inten- t i o n also to improve the l iquidity structure of its local investments.

Teble 9. UCB: Composition and Degree of Liquidity of Assets

(In millions of pounds)

Cash, Securi t ies Secur i t i es Secur i t i es June 30 R-easwy b i l l s , maturing i n maturing i n more maturing i n more Totel

crop finance, ' 5 years o r l e s s then 5 years and than 1 0 years advances up t o 10 years

S te r l ing asse t s (percentage)

%st African asse t s k r c e n t a g e )

Total (percentage)

S te r l ing asse t s (percentege)

East African esse t s (percentcge )

Total (percentage)

S te r l ing asse t s (percentage)

East African asse t s (percentage)

Total (percentage)

S te r l ing a s s e t s (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 Payments r! """- "

1. ".L Over-all balance of payments develaEents """ -

The pattern of the East African balance of payments has changed sub- s t a n t i a l l y cver the years since 1956 f o r which official balance of pay- ments eotimatea = avai lable (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 develop- ment was largely accounted fo 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 af ter 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 f luctuated between E3 mill ion and E7 million i n 1956-60 and then Jumped t o a level of El2-23 mill ion for t h e following years. On the other hand, recorded private capi ta l inflow went down from E21 mill ion i n 1960 t o only E4 million i n 1961 and r2 mil l ion i n 1962, and it has, from 1960 onward, been much more than offset by a net expenditure of exchange caused by unidentified transactjons, which are believed t o r t f lec t mainly outflow of private ind iv idua ls ' cap i ta l . Off ic ia l cap i ta l Inflow has been varying greatly from year to yeur,but without showing any pa r t i cu la r t rend*

The balance of the above-n~entioned i tems together !see Group F of Table 10) shows large f luctuat ions from year t o year between a maximum deficit of 1x6 mill ion in 1960, when t h e pr ivate c a p i t a l outflow 'was particularly large, and a maximum surplus af ~6 mill ion in the following year, vher: t h e caFital outflow had declined and, at t he same time, % s t Africa received substantial amounts of official grants, For the whole period 1956-64, however, def i c i t s exceeded surpluscs by E25 null ion. The strain af this net outflow of foreign exchange is token en t i r e ly by the comiercial banks, whose balances wi th banks abroad (i .e. , largely thetr head of f i ces in London) chenged from net claims of E17 mill ion Q t the end of' 1955 to net debts of E9 mill ion at t h e end of 1964. The foreign re- serves held by the East African Currency Board have, i n real i ty , served only t o a negligible extent to e w e the monetary s t ra in on the 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 securi ty of Treasury bills dnd other securities Issued by the melnber Governments, as well os on the t r ad i t i ona l basis of foreign exchange aSSetS- The three countries' shares of these f iduc iery lending powers ha-Je gradually itlcreased €rom the original amount of E8-9 mil l ion in 1955 t o tne present E30 mil l ion , and t he outGtandinG mounts of drawings have risen almost con- t inuously from year t o y e w und were, a t the end of '364, E21 ndllion.

" -~ - fn t i i i s - sec t ion - the .term East &ica is uied t o cover Kenya, Tanganyika , and Uganda b

- - " " - "_ -"I-""

Table 10, Zast Africa: Balance of Payments Surtrwry, 1956-63- 1/

( In millions of pounds)

B Transfer Payrcent s - Private transfers Official grat.t a

C, Pr iva te IIonmonetary capi ta l - 21,5 - 15.6 8.2 8.2 21.0 4.4 2 . 3 16.9 - - - - - ” I

Long-term capital 21,6 14,8 8.1 94 3 20.5 3.9 1 8 5 15.6 Iu m Short-term capital -0.1 0.8 1.1 -1.1 0.5 OD5 0.8 1.3 I

D. Unidentified Transactions

E. Official ITomonetary Capital - 16.8 11.3 12.5 “ 17.6 14,4 19,1 10.1 Long-term capital Short-tcrm cbpltal 3 6 8 -2.9 8.0 -3.9 1.1 -0.3 5 0 9 -2.8

- - 13.0 14.2 4.5 3.9

- - 16.5

- 14.7 13.2 12.9

- -

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

Souzce: Estimates by the East; Afr lcm Statistlcal Department, to some cxtcnt adjucted and supplemented by the F’und

110 s ign indicates credi t (decrease in a s s e t ~ t or increase In l i a b i l i l l e a ) ; minus sign indicates debl t (increase

Trade statistics data adJusted for valuation and coverage#

Etafi,

in a88 e t a or decrease in l . ~abI l i t i e s ) ,

e At the same time, t he commercial banks had drawn E3 mill ion under the crop financin6, scheme, which the Currency Board introduced i n 1961. The p rac t i ca l ly unchanged level of reserves re f lec ts , 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 asse ts . The to ta l amount of currency circulated by the Board increased from E60 million AS of June 30, 1955 t o E80 mill ion a t the end of 1964, of which, on the basis of' t h e dis t r ibut ion 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 the 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 mill ion represents the unut i l ized par t of the Government's draw- ing rights under the Board's fiduciary powers. These unuti l ized drawing rights, of which E6 million belonss t o Kenya, E2 mil l ion to Tangunyika, and El millLon t o Uganda, may be considered close to the equivalent of 8 fdrei~11 exchange reserve a t the f ree disposal of the three individual Governments. There is a fur ther amount of E7 mil l ion in the form of the unut i l ized part of the E10 mill ion which can be used by the Currency Board for crop f inanc inc through the commercial. banks. In add i t ion t o these amounts of available exchange reserves, there remains E36 million of foreign assets i n the Currency Board, of whlch the maJor par t serves as s ta tu tory cover for the currency circulption; vhile these belong to the three Governments i n common, they can be mobilized t o provide exchcnge reserves or , more generally, as an instrument of monetary pol icy only throush a new policy decision by the Currency Board.

2. Detai ls on t h e balance of payments """""" ""

a. Merchandise trmmactions

The East Al'rLcan balance of trade shoved subetan t iu l def ic i t s i n 1936 and 1957, was also the caGe i n previous years; but this was changed abruptly i n to 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 mil- l i on and €35 rnilliorl, respectively. These remarkable developments on t h e t rade balance, which a re 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 t ransact ions (in particular c a p i t a l flows) and for the domestic economy, have resulted from an increase in 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 mi l l ion i n 13>6 t o E152 million in 1964 ( 1 3 per cent ) . The quantity of exports hue, been inc~eesing almost continuously from jear t o year, interrupted only by a decline i n 1961. due t o the drought and f lood disaster, und was, for 1363, almost 50 per cent h i d u x than fo r 1956 (see Table 11). At the same time, however, export p r ices showed an unf'a-doruble t rend up t o 1362, after which a suustant ia l improvetncnt took place. These trends f o r export quant i t ies ond pr ices reflect , t o u great extent , developments for thc four major exports, coffee, cotton, s i sa l , and tea, which dccounted i n 1963 for about 70 per cent of total, domestic exports (see Table 12)

"""""""Icl

a

* a - 30 -

Table 11. East Africa: 'hade Indices

(1954 = 100)

1954 1956 1957 1958 1959 1960 1961 1962 1963 .- -.

Exports from East Africa

Quantity

Price

Value

Imports to E86t Africa

Quantity

Price

Value

Terms of Trade- 1/

East Africa

Of which:

Kenya

Tanpnyika

Uganda

1CO

100

1co

100

100

100

100

100

100

100

" ". "- "_ " " -

148

81

120

103

101

104

80

DO

85

80

" "_ "

Source: East African Statistical Department, Economic and :tat.ist~r sl Revlcw. September 1964.

" ""

- 1/ The export pr ice index as a percentage of the mport p r x e index,

Table 12. East Africa: Domestic Exports of Principal Commodities

(In mil l ions " of pO~t1d8)

Coffee, not roasted Cotton, raw Sisal fiber and raw Tea Diamonds Meat and mat preparations Hides and skins, e tc . Copper and al loya, 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 0

Total domestic export8

34.6 24.6 20.1 7.0 4.6 3.8 4.7 ' *1 4.5 2.7 2.0 1.0 2.4 1 8 3 1.3 1.1 1.1 0.9 0.7 9.1

131.6 -

45.0 25.5 30.2 9.3 4.9 4.6 3.9 4.0 4 .4 2.0 3 . 1 0.5 2.3 1.2 1.4 1.0 2.L 0.5 0.8 12.2

150. c/ -

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 to 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 prac t ica l ly 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 over=a l l export indices for 1964, which are not yet available, will show substantial in- creases both for quantity and prices, and tha 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 sub- sequent 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 level, but a subotantiol rise took place i n 1963.

The developments in export and import prices brought the terms of t rade down to a low i n 1960, 14 per cent under 1956, and e \en af ter come rccovcr, , they were sti l l , i n the years 1961-63, 9-10 per cent lower than in 1956. After the favorable developments in export prices from 1963 to 1964, the terms of trade have probably inproved somewhat, despite some rise i n average impart prices.

Besides coffee, cotton, sisal , 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 cent) , cotton fabrlcs ( 6 per cen t ) , :and i ron and steel manufactures ( 5 per cent). The relnalnder is spread over d m d e variety of minor items.

The direction 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 cent , and that t o the EEC countries from 25 t o 20 per cent, whlle there hac been an incrcuse f'ol the United States and Canada from 12 t o 1 5 per c e n t , and for "other coun- tries" including Malnland China, from 13. t o 18 per cent of t o t a l exports. With regard to imports, the share received from the sterlinc drea has a lso shown a large decl ine, namely, fro111 61 per cent iyl 1956 to 145 per cent in 1963, while the shore provided by all the other ' 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 mil l ions of pounds) -

Passenger vehicle6 and chassis Buses, t rucl te , lorr ies , etc. [::;I Railway rollin8 stock 2.2) Aircraf t (0.1) Other ( 5 . 2 )

Transport equipment

Machinery other t h a n e l e c t r i c 14.7 Tractors , including agr icul tural (1.1) Agriculturalmachinery, etc, (1.2) Other (12.4)

Petroleum products Cas, diesel and other fuel O i l 6 Motor spirit Other 4.3)

Cotton fabrics (piece goods) 7-5 I ron and steel manufactures 09 5 Elec t r ic machinery, apparatus, e t c . 5 . 3 Paper, paperboard and manufactures 2.4 Clothing, except f u r clothing 2.2 Rubber tires and tubes 2.1 Medicinal and pharmaceutical products 1 4 Radio and t e l ev i s ion sets 0.4 Scientific, medical, etc., instruments 0.7 Ju te bags and sacks 1.1 Blankets and t r ave l l i ng ruas 1 . 3 Printed matter 0. B Hand too ls of metal 1 .2 Milk and cream, t inned 0.7 Sugpr, ref ined 2.8 Textile yarn and thread 0.4 Insecticides, fungicides, etc. 0.7 Fer t i l i ze r s , man' factured 0. e Chemicalf3, inorgardc and organic 0.6 Tea "

Petroleum, crude and par t ly ref lned "

Alcohohc beverages 1.0 Sanitary, plumblw, c t c . , materials 1.2 Paints, varnishes, dyestuffs, c t c , 0.9 Other commodities 41.0

Total lmports 133.8

SoUrC&: East African Stat is t ical Department, Economic and Statistical Revlew, and 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 mnd C O U i t r i O 8

( 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

hllar area

Ce~lada and Newfoundland Unrted S ta tes

EEC countries

Belgium-Luxembourg FrBJlce Germany, Federal Republic of Italy lietherlmds

EFTA countries (cxcluding Unitcd Kiudom)

Denmark

Other Swcden

Other countries

Congo (Leopoldville) Rwanda and Durundi Sudan Japan Mainland China Iran Other

Unallocated

T o t a l

Source: East Afr ican Stat is t ical Department, Ecorlomic m d S t a t i s t i c a l Review.

a Including re-exports.

46.9 1.3 2.0 2- 7 6.9 0. e 0.2 2.9

39 7

7.2

6.7 0 .5

25.1 2.2 4.5 9.9 4 5 4.0

4 8

0.0 1.6 2.4

-

0 6 0.1

19 0 0.5 9 2 4.2

"

Q 145 0

a

- 35 - b. ~ m a c t i o n s In services

The balance of foreign transactions in services, of which detailn for 60me selected years are shown In Table 15, has been fluctuating over the period under review between def ic i t s of E l l mllllon and E10 million. A m j o r part of the def ic i t s ie accounted for by t he excess of investment income paymente to nonreslbnts over thoee recej-d from abroad, for 1963 amounting to El9 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 88 a natural result of the increase in foreign debts and foreign Investments in East Africa. Receipts from H.M. Forces stood at €3-6 million in 1956, but were more than offset by payments of E7 million to the War 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 1.963 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 El-2 m i l - l i o n is mostly the resul t or' production I n Tanganyika.

c. Transfer payments ""-----d"

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 sl ight ly

yeare, amounting t o E7 inil l ion i n 1963, yresumably result ina mainly from a rise in emipants ' transfers.

positive from 1947-61, but has showed au Increasing deficit in recent

Official grants from abroad, for whlcn detnilo arc shown i n Table 16, were fluctuating i n the yeom l956-60 bctwecn E3 rui l l ion 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 yeuro wos a result of the Overseas Service Aid Scheme (OSAS), under which the U . K . Government contributes t o the salaries of expatriate off icers serving i n t h e Bast African countries.

d. Private nornonetag c a c i t a l

The recorded net inf'lov of capital t o the prlvdte sector has fluctuated between 3.23 million and E22 mill ion a year apart from the years 1961 and 1362, when it amounted t o only a few million pounds. Tn 1-956, East African corn- paniee 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 capi ta l inflow i n those years, aGsisted i n l95d by 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 Statuto1 y Boards.

- 36

Table 15. East A f r i c a : Foreign Tranmctims in Serdoee

(In mil l ions .of pounds)

"-.-."". ".- """"

Sources: East African Statiet ical Department, The Balance of Paymenta Of

1/ Consists of central. governments, the various EACSO departments, the E,A.

2/ Including l oca l authorities, Sttrtutory Boards and commercial banks.

East Africa) and data provided di rec t ly by the %st African Statistical Dopartment.

Cukency Board, and the Post Office Savings Benks.

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 are 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.)

0 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 mil l ion worth of l o c a l equi ty 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 related largely to p o l i t i c a l uncertainty and net investment fell from the E21 mil l ion of 1960 t o E4-5 million i n 1961 and E2 mil l ion in 1962. This ref lected a decyease i n net loans to East African companies, in investment by branches and insurance companies, and i n the value of undistributed profits. In 1963, the net capital inflow rose 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 assets are shown in Table 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 mil l ion and t o t a l assets 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 mill ion. These data, however, do not cover private individuals' foreign l i a b i l i t i e s and assets. It should further be noted that the changes from year t o year ic the outstanding amounts differ widely from the corres- ' ponding balance of payments entries, presumably due to valuat ion and cover- age adJustment s.

e. Unidentified t ransac t ions " -

The label "unident i f ied t ranoact lons" i s here used for the balancing item, whictA represents a net pf a l l errors and omissions i n the est imates of specif ied accounts. I n the years 1956-59, t h i s item fluctuated between 8 debit of E15 million and a credit of El million, but i n 1960 it shot up t o 8 debit of E48 million, and it was of an extraordinary n~ugnltude also 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 reflect mainly an unrecorded outflow of private individuals' cap i t a l .

f . O f f i c i a l nonmonetary c3Ei ta l """ """" "-

The public sector's long-term c a p i t a l transcctions of which some d e t a i l s are Gxven in Table 18 hovc shown a net inflow f luc tua tang in 1356 and 1957 and In 1960-63 between E13 million and E16 n ~ i l l i o n , b u t with a drop to about E4 mill ion in each of the years 1958 and 1953. The inflow i n the f irst two years included large amounts of loans 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, pa r t i cu lu r ly by Uganda. The low lnflow i n t h e two Sollowin;; years was due largely to the clbsence of any new loans, while sales of securities continued. The major sel ler w a s still the 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 securi- ties he ld on the London murlcet by more than Sl.0 millicn. The large inflow i n 1960 and 1961 was the reLu1-L of' Exchequer Loans from the U.K. Governn~ent (E12 million i n 1960 and E18 mill ion i n 1961) and loans from t h c IBRD (E2 million in 1961). No deta i l s are available for t h e most recent years.

. - 39 - e Table 17. East Africa: Private Sector's Forei Liabilities

and Assets Outotmdlng, 1.959-63- f?

A8 at end of 1959 1960 1961 1962

Liabil i t ies

Stock8 held by nonresidents 50.2 50.0 53.5 54.2 - - - -

Loan capital (including debentures and overdrhfts)

Public companies 20.7 20.5 18.2 16.3 Private Companies 22.2 26.7 28.3 2j.1 Branches 35- 3 34.9 32.2 28.9 Local authorities (Kenya only) " " 0. j 1.0 Statutory boards (including UEB) 0.5 0.6 1.9 2.5

Assets _. 37.8 34.9 - 35.2 - 1 - .. 1 Long-term assets (sccurit res, e tc , ) - 34.1 - 31.8 - 32.2 - ..

Public companies Private companies Branches Local authoritles Statutory boards

2.0 1. 'i 1.9 ... 6 * 5 6,2 6 . 0 . I .

2.8 1.2 1*4 . . I

2.4 2.5 2.7 ... 20.4 20.2 19.4 ...

Short-term assets (cach, e t c . ) 3 7 3 - J 3 - 0 I . . - - - - - Public companies 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 Da- partment . ass&.

1/ The table does not cover private individuals' foreign liabilities and

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) 2.2 10.0 -- -0.1 0.1 -on1 -0 .3 -- 6 . .

I n t e r - o f f i c i a l loans Central Governments EACSO (EAHC)

Tota l l iabi l i t ies Kenya Government Tanganyika Government Uganda Government EACSO (EAHC)

Net increase ( - ) or decrease i n assets ( secur i txes held on London market)

Total sssets Kenya Government Tanganytka Government Uganda Government EACSO (EAHC ) Post Office Savings Banks Unallocated (net)

Increase or decrease ( - ) in net l l ab i l i t i c s Kenya Government Tangauyika Government Uganda Government

Post Office SaviRgs Banks Unallocated

EACSO ( m c )

1.0 -0.1 -0.5 -0.5 -0.5 767 4 . b -0.2 I . .

No sign inaicsteo credit; minus si@ indlcates debit.

.

Outstanding amounts of the public sector's long-term foreign l iabi l i t leo and aseeta are shown i n Table 19. A t the end of 1963, net l i a b i l i t i e s amounted t o El03 million, r e f l ec t in6 gross l i ab i l i t i e s of E178 million and @OB6 asseta Of E75 million. There were net l i ab i l i t i es 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 capi ta l transactions of the public sector cover govern- ment 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 fo r moat of the years been fluctuating between net credits and net debi ts of E3-4 million. The large 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 in 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 to 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 in the balance of payments (Table 91, presumably due to coverage and valuation adjustments.

&. Monetary_movements ""

The large f luctuat ions over the l a s t nine years i n receipts and pay- ments re la ted to fore lgn t ransac t ions ia goods, services, grants, and cap 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 in s t i t u t ions ' foreign balances. This was the case in 1957, when a sharp deter iorat ion in the terms of trade and a drop i n the volume of cotton exports caused a sub- stant ia l increase In the t rade def ic i t , 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 re la ted t o an unrecorded outflow of private 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 deter iorat ion of E25 million. This amount is en t i r e ly uc- counted for by the commercial banks, whose balances with banks abroad ( i 1 e. , l a rge ly the 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 con- trast with this E26 million reduction in the commercial banks' share of t o t a l foreign net monetary asse ts , the three countries' estimated common share of the East African Currency Board's s t e r l i ng assets declined only by E3 million from E55 mill ion 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 offset by the three COW- t r i e s ' payments, i n 1962-64, of t h e i r gold subscr ipt ions to the International Monetary Fund.

The currency issued by the Board is clrculot ing not only i n the three East African countrieo but also i n Aden and Zanzibar, and the Board's t o t a l wosa asse t s - - inc lud in~ locaL os well 8 6 overseas assets--belonp, t o these f ive t e r r i t o r i e s In common. However, because of the f ree flow of t h i s currency over a l l five t e r r i t o r i e s , there are no poasibilities of making current estimates of t h e d i s t r ibu t ion of the currency c i rcu la t ion and, therefore, balance of pnymente en t r iea for the f i v e territories, a8 well a6 their shares of outo tandiw amounte of assets, can only be calculated as very rough approxirnntlons,

.I 42 - Table 19. East Africa: Public Sector’s Long-term

Liabilities and Assets OutstandAng

( I n mil l ions of pounds)

As at end of

Long-term l iabi l l t les

June 1959 1960 1961 1962 lgGg 1964

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 ( M C )

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

Long-term assets ( secur i t i e s , etc , )

Kenp Government Tanganyika Governmext Uganda Government

Post Office Savings Banks EACSO ( m c )

Kenya Tanganyika Uganda

Total long-term assets

Net long-term assets and l l ab i l i t l es ( - ) Kenya Government Tanganyika Government Uganda Goverment

L-

EACSO ( w c )

0.5 1.9 4.8 7.5 10.0 11.2 ” 6.0 8.0 12.2 14.4 18.4 10.0 9.5 17.3 17.4 17.3 18.3 121.4 135.6 154.3 165.5 178.4 191.1 ””“

13.7 14.8 9 . 3 9.5

23.9 25.1

(4.2) (3.8)

21.0 20.3

6 .5 6.0

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

74.4 75.7 ”

Sourcea: East African Sta t i s t ica l Department, The 3alance of Payments of East Africa. and data provlded directly by the E.A. Statzstlcal Department. ”’

e . - 43 "

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

( I n millions of pounds)

As at end of 1959 1960 1961 1962 1963

Short-term Liabi l i t ies 2.5 3.5 3.2 6.7 5 . 2 ""- Kenya Government Tanganyika Government Uganda Government

Short-term Assets

Kenya Government Tanganyika Government Uganda Government %CSO (EAHC ) Post Offlce Savings Banks

I k t Short-tam Assets o r Liabllltles ( - )

Kenya Government Tanganylka Government Uaanda Government

Post Offlce Savings Banks mcso ( m c )

4.3 1.4 7.2 6 .6 6 .6

1.8 -2.1 4.0 -0.1 1.4

-0.2 -0.9 -0.2 1.2 1.3 -2.,0 -1.3 -2.0 -3.1 -1.4 0.2 -1.3 1.8 -0.0 -0.4 3 6 1.4 3.2 2.5 LO 0.2 " " 0.1 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 Depart- men i .

1/ Includes trust funds set aside by the E.A. Culrency Board t o he used for-bUbSCrlptiOnS LO international f inanc ia l i n s t i t u txons .

-44-

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

In the calculations for Table 21, special consideration had to be given to the fiduciary lending, which represents , at the same time, Part Of. the gross assets 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 th a limit Of 320 million, which has since then been increased step by Step to the present E35 million. In 1961, the Board introduced powers for lending to the comercial banks in connection with crop financing; th original ceiling of E5 million was increased, in 1962, to E10 million. 4 While the fiduciary lending powers are allocated amng the Governments on the bas is of thc above-mentioned proflt-sharing formula, no corresponding allocation by countries is macle for the lending powers under the crop finsncing acheme. Since such l end ing normally takes place v i a the Nairobi office of the bank in question, the lending under this Bchenle is allocated 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 iduciary powers almost continuously from year t o year, and at the end of 1964 they had drawn ~ 2 0 . 6 million out of the ir t o t a l fiduciary ullocation of' C29.7 mil- I fon . The remaining amount of €9.1 mil l ion . of which CG. 3 mil l ion belonGG to the Kenya Government, 21.0 million to the Tenganylkco Government, and E1.0 mill ion to the Uganda Government, repreoente t h a t par t of t he Cur- rency Board's a s s e t s t ha t is most freely a t the disposal of t h e i n d i v i d u a l &3OVerrIInentS Q Y l iquidity and as exchange reserves.

The crop f inanc ing scheme was used very l i t t l e clurln,: the f ' i l -sk y c a r s of its existence, but t h i s chansed subs t an t i a l ly 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 scheduled maxlmm om~unt of E10 millli 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 within cer ta in limits, ease a monetory strain and, thus, conduct monetary policy functions normal to a c e n t r a l lmnk proper.

- - - " -i For more deta i l s , see section-13 of' t h i s paper. - " - - - - - - """"" "-

a- 45 - * * L

T a l e 21. East Africa: Ertimstee of Kenys's, ~ ~ ~ t g a n y i k a ' a and Uganda'a Sharer of -reign Reeervee held by

the EMt African Currency Bod

( In mil l ions of pounds)

As at end of:

Kenya

Government s unut i l izcd flduciary a l locc t ion Total fiduclexy a l loca t ion Dr amngs

Other a s s e t s

T a n g W a

Covernnent's unutlllzed f iauc iary 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 duc lmy allocation Dr am nC;s

Other z s s e t s

N1 East Afrlca

Govern-ncncs' unutlllzcd f lc luclwy Lllocatlonc T o t a l f i a u c i w u e c a t i o n DrebWipeS

Comcrclrl btmlLs' unutlllzeu f lduc l -Jy allocation Total f iduclury allocation D r m l n p

Other JS s c t n

Lourcec: Prcparco by the Fund staff on thc basls oE datu provldca b~ the East Af'rlcan Currency Board and t hc Cast, ALfrlcan StatlstlcjL Deparbnent.

The remaining amount of the Currency Board's assets is largely t i e d a8 statutory cover for the currency issue, and i ts mobil izat ion as an instrument for monetary po l i cy w i l l require a new pol icy decis ion by the Currency Board.

The establishment of f iduc iary lending powers and the actual lending under these powers of E24 million repreeent, i n a certain sense, a mobili- zation of reserves, without which the East African economy would, pre- sumably, have come under a s t i l l tighter monetary strain. The fac t that the estimated East African share of the Currency Board's assets is only E3 mi l l ion 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 tra in through f iduc ia ry lending has l i t t l e wore than compensated for the 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 required 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 the Board increased from €60 mil l ion a t mid-year 1955 to ~ 8 0 million a t the end of 1964, of which, on the b a s h of the al locat ion implied i n t h e prof i t -ohar ing formula, C51 mil- lion and E67 million, respectively, can be estimated to have been c i r c u l a t - ing in the three Eest African countries.

The drawings on commercial banks' belances with overseas banks have largely been channeled through the Kenya banks, which had ovcrseB8 net claims of E10 million a t the end of 1955 and net debts of E15 mil l ion at the end of 1964 (see Table 22). During the 881138 period, the Uganda banks' overseas net claims went down from E3 mil l ion to El mill ion, w h i l e those of t h e Tanganyika banks increased from E4 mil l ion to E6 mill ion. 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 heavily on Kenya banks.

No comprehensive estimates are avai lab le fcr the balance of payments of the 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, including the two others , 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 he FACSO, and the common market arrange- ments I n v o l v i n g absence or border cont ro l between the three countries. However, a systematic allocation by country has been made for recent ycoro of Eas t Af r i ca ' s transoctio~a with "overseas" countr ies , includm:: all countries outside East P f r i c u , and w i t h regard to in te r te r r i to r ia l t r s n s n c t i c n s , the official t rade statistics U t a have been supplemented with est imates for transportation and handllng charges for imports arid exports through Kenya by Uganda and Tanganyika. Summaries of these 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 even t h e breakdown of overseas transactions involves a s u b s t a n t i a l de[, Tree of' uncertainty, and that in addition the luck of estimates on s ignl f iconl , ca t eco r i e s of inter terr i tor ia l t lgansact ions, 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 tables .

'.

Table 22. Zaot Africa: Commercial Banks' Balances with Overseas and East Al'r ican Banks r/ (In mill ions of pounds)

1955 1956 1957 1958 1959 1960 1961 1962 1963 1964

A. Balances with overseas Banks

Kenya Tanganyika Uganda

B. Balances w i t h East African Banks- 2/

10.2 3- 9 2.8

2.4 "a

Kenya Tanganyika Uganda

18.0 - 8.3 4.6 511

10.6 14.1 "

3.7 8.7 2.7 3.4 4.2 2.0

2.8 2.9 "

4.8 1.6 34 2 4.1

-5.2 -2.8

12.1

8.4 2.1 1.6

-

4.0 - 3.8 3.4 -3.2

- 3.5 4.7 -

~~~~ ~~ - ~~~~ ~ ~ ~ -~ - - ~-

Sources: East African Statistical Departrrent, Economic and Statistical Review; and data provided direct ly by t he East African Statlstical ilepartment.

- I/ No slgn indicates net claims; minus s q n indicates net debts. 2/ The figures include balances with Zanzibar banks; but t he major part of the t o t a l of n e t balances for

the-three East African counCries i s acccunted for by timing differences and other s t a t i s t i ca l d l sc repanc ie s .

-

c

Table 23. East Africa. Fragments of InclividLd Balenc s of Payments for Kenya, TsngaFyika, and Uganda 9

( I n millions of pounds)

East Kenya TanGanyika Uganda m i c a

1959 A. I rz rcasc or decrcase (-) i n n e t monetary acseto

E. Goods and oversens serviccs C. Oversear trhnafer payments D. Ovcrcear cnpitdal movclrents

E. T O L ~ (n through D)

F. Unidentified t ransac t ions (A nunus E)

of vh :h accounted for by:

lgG0 A. Inercesc or decrcasc ( -1 17 nct monetary acsets

o f whlch eccowltcd fo r by B. Goous and ovcrcear services C. Oversens transfer ?q,ments D. Overseas capltnl novements

E. Total (B throueh D)

F. Unidcntlficd. transactions (A

15661

nunus E)

P. Incrcasc or dccrcesc (-) In nct monetary asscts

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. Total ( B throu[,h D )

I?, Unidcntlfled trnnsectlons (A mnus E)

1932

of vhlch eccounted for by.

A. Incrcace or decl c a d ( - ) I n nct monetmy assets a f vhlch accountcu io1 bJ

B. Goous MU ovcr%es scrvlccs C. Ovcrccns t ranzfcr pcyncnts D. Ovorseab cnp1to.l movenents

E. Totc l (B through D)

F, Unldcntlflcd transactlons (A nunu3 E)

1% 3 A, : ICI cacc 01 dccrcnsc (-) I n net monetary esscts

D. Coous and ovcrscas scrvlccs C. OvcrscaG transfcr peyncnts D. Ovcrreas capital lilovcments

of which occountcd fm by.

E. Tota l (n t h r 0 U p ; t l n) I?, Unidcnt i f icd t ramact ions (A minus E)

-1.2

2.7 0.9 4.6

0.2

-9,4

-2.3

I

4.0 1.0 12.1

17.1

49.4

"

1.0 3.5 4.5

9.0

-9.0

1.8

-1 3 3.4 11.7

13. I:

-11.6

-2.2

5.3 007 I r . 0

10.0

4.2.2

Eccept i n ltct>lu A, 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 minus sign indicate6 deb i t ( incrcasc i n nosctc or decrease in l i ab i l i t i es ) .

Table 24. East Africa: Fragrner.ts of I n d i v i d u a l Balances of Fqmente f 1: Kenya, Tanganyika, and Uganda. Totals and Annual Averages for 1959-63- 9

(In mil l ions of pounds)

I - Total 1959-63 Annual Average 1959-63

Tanga- East Tanga- East Kenya nyilra Uganda Africa Kenya nyika Uganda Africa

A. Increase or %crease ( - ) i n Net Monetary Assets -3.2 -3.4 -3.9 -10.5 -0.6 -0.7 -0.8 -2.1

1.2 - v 3 . 1 0.1 2.8 -23 T X " a.-6 E.A. Currency Board's w s e t s k

- - - Commercial banks * foreign bal.nr.=es - 6 , 3 -3- 5 -G* 7 -16.5 -1.2 -0.7 -1.4 -3 .3

O f which accounted f o r by:

B. Goods and Overseas S;.rvlces Merchandise transactions Overseas serv ices

C. Overseas qyansfer Payxnents

D. Overseas @&)its1 p m n e n L s "

E, Total (B through D) 5.5 - 8.8 11. G - F. Unidentified wansact lons

s llrces. E s t u u t e : , by East African sbL I s t i c a l Department,, to SOlnG e x t e n t adjusted and supplemented by the - * """ ""y_ "

F U ~ a t a f i . r/ Zxcept in Item A, no slgn Indicates credl t (decrease 111 assets o r lncrease in l i ab i l i t i es ) , while minus sign

indicates debit ( Increase ~n assets c,r decrease in l i a b i l i t i e s ) . Including gold subGcription t o the IMF, El. 1 million each for Tanganyika and Uganda.

For t h e f ive -yea r per iod 1959-63 a s a whole, thc d e t e r i o r a t i o n of the net monetary pos i t ion was practically the same, E3-I+ million, for each of t h e three countries, even though 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 deficit for Kenya a t E44 million, while T a n p n y i m had a def ic i t of only E6-7 mill ion, and Udancb a surplus of Ell mill ion. Overseas o f f i c i a l grar;ts and other transfer 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 mill ion, Uganda E37 million, and Tanganyika E28 million.

Altogether, the recorded t r a n s a c t i o n s in goods, se rv ices , 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 five-year period f'or all three count,ries. The concurrent detel Ora- t i o n of the rnmetary poaitioo indicates that there has been a large Outflow Of foreign exchange through m i d e n t i f l e d Lransactionc--for Kecya E33 ] n i l - lion, for Tanganyika E44 mill ion, 3nd for Uganda E61 million. Mthough the un iden t i f i ed balance has f luctuated Greatly from year t o year, it has been n e p t i v e f o r each of the count r ies for all t h e years from 1960 onward. As mentioned earlier, the correspandmg unidentified balance for East Africa as a whole is bel ieved to reflect wainly an unrecorded outflow of p r i v a t e ind iv idua ls ' cap i t a l . Fo r an evalua t ion of the baldnce for each indiv ldua l countrl, however, it must be taken i n t o account -chat the balance may include 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 rv i ces 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 coun t r i e s than t o those for dl1 East Af r i ca . For thcse reasons, it W i l l not be Justifiable t o draw any conclusion from the re la t ive 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 East Africa. Best Indications seem t o be tha t such an outflow ha; t aken place in t h e years since lgG0 t o A greater or lesser exten t from all the three countries.

- 51 -

IV. Trade and Exchmge Controls in East Africd'

The t rade and exchange cont ro ls in East Africa may be broadly divided i n t o two groups: those re la t lng t o t ransact ions between the three East African countries and those relating to transactions with countries out- side East Af'rica. Trade and exchange t ransact ions between the thrse Afrlcan countries are relatively free, while those w i t h the other corn- tries are subject to various controls and r e s t r i c t ions .

1. I n t e r t e r r i t o r i a l c o n t r o l s

The three East African countries have followed until very recent ly iden t i ca l or s u i l a r policies in respect of i n t e rna l and external. econcmic relations. Relations among them have been characterized by the creat ion and maintenance of what is general ly cal led the East African Ccmmon Market. The Common Market is based i n par t on various specific agreements concluded between the East African countries and has developed in accordance with UderstandiLgs taci t ly accepted by I t s participants.

The most e s sen t i a l p a r t of t h e East African Ccrrsnon Market. consis ts 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 ee movement of g o d s and capi ta l within the Ccunon Market area. The three East African countries maintam broadly the Sam tax st ruc ture and rateG although t h e ra tes a r e e s t a b l i s h e d separately 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 ransport and comunicatxou systems. 0

P r i o r to the implementation of the Kampala Agreement ln Apri l 1964, (see below), the three countries appl-ied very few restrlctlons on trade with one another. These reGtrlctxons were mostly confined t o ccmmoditics wnose trade was controlled by s ta te trading orgdnlzations or t o 6cme ccm- modities which happened t o be in short supply from %me t o time i n the l o c d markets.

a. Kampala Agreement

While the East African Common Market economic area enJoyed benei'xts of a large, r e l a t ive ly free, econcmic u m t , p u r t i c i p a t l n g couut r ics Gilowed scme d i spa r i ty in their respective rates of GrowLh. In 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, both Tan@nyilTa and Uganda f e l t themselves at a disadvmiagc in relation t o thc benefiks OS the Cornon Market. Realizing t h a t widely dlfferent Levels of lndus t r ia l izaJ t ion i n the three East Mrlcan col ln t r ies could c o m t i t u t e a Lhreat t n t he 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

e Common Market.

' m s section does no t cover-the changes introduced on - -

- 52 -

An Emergency Committee consisting of the Ministers for Finance and the Ministers for Commerce and Industry of the three countries was entrusted with Implementing the Agreement. They took action along the following l inea:

(1) In the case of four lndustrie~--tobacco, shoes, beer and cement- particular firms operating In more than one country were asked t o take steps to bring about a closer balance in trade. The ne t effect in relation t o the imbalance between K e n p a d Tanzania of the actions to be taken by these firms would be to improve the belance in respect of tobacco by Ep(OO,OOO; for foot.- b a r by ~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 of' 24 per cent of t 3 1963 net trade imbalance. The t o t a l effect i n reducing imbalance between Uganda and Kenya might be Of the order of E650,000 yearly which is equd to approxlmately 23 per cent of the over-all imbalance. A6 regards the favorable Uganda balance with TPsnzstznia, the action taken w i t h regard to cigarettes may have S reduc- effect of the order of E200,OoO. The total in respect of beer could be reduced by E5O,OC;O, making au over-all reduct ion for these two items of E250,000 or 1.7 per cent of the 1963 imbalance.

(2) Certain industries under the E.A. Industrial Licensing Ordinance are t9 be el located on a monopoly basis to certain countries. The industries which have been allocated SO far, and the countries to which they have been al located are: (a) Tanzania--aluminim f o i l , circles and plain sheets; wireless receiving sets and components thereof; and motor vehirles tires and tubes; (b) Ugande--al,l parts of bicycles and nitro- genous fertilizers; and ( c ) Kenya--;LncandesceQL filament, electric lmps.

(3) a o t t t s can be applied where there is exis t ing productive ca2acity in t he deficit country, and a suspended quota may be granted where the deficit country wis; a s to develop productive capacity. The quota system LG to be controlled by an interterrit,orid Quota Committee. Thus fa, Tanzania has subdecked over 50 commodities or groups of comodlt ies originating in Kenya or Uganda to individual licensing, including various foodctuffs, textlle products, bui lding materials and metal manufactures. Similarly, Uganda has restricted the import of beer, s tou t , and cementa from Kenya and Tanzanla. Kenya has, however, continued t o adrnit imports freely from the other two countries.

(4) Both Kenya and Ugenda l i s t ed some prcducts which they could ixmedlcttely purchase Prom Tanzania, and Kenya did the same for Uganda.

(5) The questions of fu tu re allocation of industry and di f fe ren t ia l incentives to industry were refezred t o a committee of' industrid experts, which the three Governnlcjnts w e now in the process of Getting up.

- 53 -

The Kenya delegation Informed the Eheergency Cornittee t h a t i t s acceptance of t h e reccmmendationa of the Report was subject t o ce r t a in 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 (Le . , 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 ac t been discussed, The assumptions specified by the Kenya ddeGatlon were: t h e East African Common Market, the ccmmcrl services, and i n Pmtlc- ulm 9 common single currency will continue; all parties recognize the value of associat ion i n a common market in fos t e r ing t h e economic develop- ment of t h e whole area; and all p a r t i e s agree t h i t t h e Comon Market C a n

Only survive E the benef i t c of this economic development are fa i r ly shared between them.

2- - Trade and exchange r e l a t i o n s wi th 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 countr ies outs ide EaGt Africa, c lose ly fo3low t h a t Of the United Kingdom except for certain deviations necessitated by local. conditions,

Payments and t ransfers from East African couniries to other bter l ing ares. countries are free of any res t r ic t ion . Payments and tram- fer6 from other sterling area countries to these countries w e a lso not SubJect to any res t r sc t ion .

Paynents and t ransfera on current account from East Afrxan countries t o countries outsldc the sterling area a r e sub(]ect t o approval frcm t h e exchange control authori t ies . Such approval is granted i n all cases of genuine current payments and transfers. Transfers and paytWnts f'rcm countries outslde the s ter l ing area t o each of these cowltr les are SubJect t o controls and, i n the case of capital . transfers, to certain reb t r id iOnS*

The three countries p r o h i b i t commercial imports from the 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 individual l icensing t o specified imports mdepenciently ut' the count ry 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 all. mports from other countrles, Imports Lnto the t h e e Hast Al'rlcan countries from couatries outolde East Afrlca whlch are no t Gubject t o lndividual lxcensing are free of quantitative restriction. Payments for all authorized imports are free of res t r ic t ion .

Kenya and Ugandct cont ro l exports, of' specif ied 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 Wree- m a t s with 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 the u p o r t of 15 items are maintained by each of the E a i t African C C u n t r i e f i - These duties only become operative (either i n whole or in pat) Js pur- SUQnCe 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 may remit it: whole, or in Part , m y import duty or suspended duty payable by any person on any gocdG imported if he i s satisfied that it is in the public interest to do SO or that payment of any auch duty would operate inequitably or h a Shly.

The E a s t African bhl l l ing , issued by the East African Currency Bawd, is t h e l ega l unit of currency in crrculation In East, Arnca and is of f i c i a l ly maintained at par with the U.K. shilling, g Lving the Telatj on- s 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 public equivalent to at least E stg, 5,OcO the East African Currency Board c t a n d s ready to issue E a b t African cur- rency rn exchange For s t e l lug and $0 supply s t e r l i n g i n exchange €oY E a s t African currency. In transactions covering smaller amoun-ts, the public has to dea l th rough authorized banks. The off ic i& buyin& und selljng rates for the pound s t e r l i ng differ frcm par i ty 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 larger t l ansac t lons ) with private firms at rates between the o f f i c i a l limits. To avoid the costs of exchange, a number of importers, exporters, and other persous are reported t o car ry

9 I - 55 - e out their transactions i n pounds sterl ing outside the barrking system

through unofficial t'ccmpensation". But-the importance of such trans- actions has gradud..ly diminished pa r t ly owing t o t h e reduced t ransfer 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 other foreign currencies, Comaercid. and tourist enterprises are also permitted t o accept foreign currency in payment of g o d s and services supplied t o fo re ign tourists but the foreign currency so acquired must be surrendered t o an authorized bank i n exchange f o r E,A, shil l ings, 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 for Finance in each of the three countries i s responsible for t h e administration of the exchangs contror system i n i t s respective country, Authority for approving automatically ordinary mport payments and specified payments for invlslbles and capital up t o established lirnlts t o countries outside t h e s te r l ing area i s delegated t o authorized banlcs. Applications for all other current payments and capi ta l t ransfers t o countries outside the sterling area a r e examined and approved by the Office of Exchange Control, located in the Ministry f o r Finance.

Import and export corltrols are administered by special offices An the Minis t ry of Ccmmerce and Industry, In Kenya, It 1s the Director of Trade and Supplies; i n Tanganpka, the Controller of Imports and Exports; and in Uganda, the Permanent Secretary of the Ministry of Commerce and Industry- In the case of cer tam specif led commodities, t h e u - imports and exports are oubject t o cont roh 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 the United Kingdom, Settlements wi th countr ies i n the s ter l ing area 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 usual ly be receLved 111 sterling, i n East ican shillings from an External Account, o r i n any specified currenc yymd i n Tanzania, a l s o in any foreign currency for

The specified currencies are listed as follous: Austrian schil.lLnG6, I

a Belgian fruncs, Canadian dollars, Danish and Faroese kroner, dcuLsche mwk, French francs, Italian l i r e , Netherlands gulclerc, IVorweglan l w u n ~ r , Portuguese escudos, Swedlsh kronor, Swiss francs, and U,S. do lb r s .

- 56 -

which there i s a ready exchange market. Payments to countries outside t h e sterling area may be made in convertible sterling, in East African shillings to the 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 country of residence, either a s t e r l i n g area account or a nonresident account, fo r settling authorized current and c a p i t a l transactions. In addition, residents of countries outside the stef l ing 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 shi l l ing6, may be maintained by res idents of other sterling area countries. These accounts may he credited with all authorized payments due to sterling area countries, and the proceeds of sales to an authorized bank in East Africa, !These accounts m y be debited for payments for expor t s t o countr ies in the GGerling area, for payments to residents of other countries in the sterling area for any purpose, for transfers to other sterliry: we8 accounts i n an E a s t African country, for purchases of any sterling area currency, and for withdrawt;rls by the account holder while he i s temporarjly the res ident of an East African country. "ransfer~i between sterling area account6 may be made freely.

Accounts,~hiDpine/Airlino Resident Accounts and Undesignated Nonresident

exchange control authorities before opening any nonresident account, except t h a t in Kenya and Uganda prior approval is not necemcrry In cases where nonresident status can be established without any doubt.

" .

ACCOU~S. The banks are requlred to obtain the prior approval of the

While BternaL Accounts may be opened by any resident of the non- Gterling area countries, t h e "Shipping/Airline Resident Accounts" a r e required t o be maintained by agents of nonresident shlpping/airline companies with an authorized bank in East Af r i ca i n t h e name of t h e i r nonresident principals, UndesignRted Nonreb dent Accounts are rather infrequent and are &llowed t o be opened i n o n l y exceptional. circumstances when, for example, a nonresident pays frequent visi ts to the s t e r l i n g area countr ies and is obviously not eligible to maintain ei ther a s t e r l i n g area account or External Account.

A l l payments into nonresident accounts are s tr i c t ly c o n t r o l b d and banks are not permitted t o grant any overdraft facilzties t o nonresidents without prior approval of the exchange control author i t ies . Balances In these accounts are e l i g i b l e for transfer t o countries outside the sterling area withcut any acr t~ t iny m via oxchange con-brcll oy~rova;l.

Undesignated nonresident accounts are not permitted by Tanzanla.

e - 57 - External Accounts may be credited with authorized paymentfi by res i -

dents of the sterling area countries, with transfers from other External. Accounts, and with proceed6 of sales of non-sterling area currencies and gold. Ekternal Accounts may be debited for payments t o residents of the s ter l ing 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 for payment t o a t e r n a l Accounts, and from residents outside the sterling area received in sterling from Ekternd. Account. They may be debited with di~bursements for expenses such as ref'unds on unused travel t ickets or for other 17cd. expenses and other pay- ments authorized by the Ministry for Flnance.

Apart from the nonresident accounts mentioned above, residents of non- s ter l ing area countries may d.60 hold Blocked ACCOU~B. These accounts are credited with cer ta in capi ta 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 securi t ies which do not mature within five years f rom the date of acquisition. Income from such securit ies may be remitted abroad. Proceeds at maturity of any such securi t ies that are redeemable may be transferred t o a country outside t he sterling area, Transfers of blocked funds may be made t o any other s te r l ing area country, provided a l e t t e r of nonobjection is issued by the exchange control authorit ies 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 rest r ic t ions 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 Mrica or Metropolitan Portugal. Tanzania prohiblts commercial imports f rcm South Africa, Portugal., and &lJ, Portuguese possessions. The three countries a lso pro- hibit certain other imports f o r security, public health, mord , and similar reasons.

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

- 50 - 4

In Kenya, import licenses f o r specified commodities are granted on the basis of various policy considerations; while imports of eome com- modities are freely licensed, imports of other conrmodltles are not nor- w y licensed.

k Tanzania, indiv idud licensing appl ies to imports of specified commodities from all CotlPnonwealth countries, all GATT countries, and

~%%&? All other imports from these countries are free of individual l icensing and restrict ions. The import of all goods Trcm 833 other coun- tries is subJect to j.ndividual.licensd..ng.

t h which bilateral trade agreements have been negotiated and

& U g d a , l lcenses for imports of goods from Japan have been temporaril suspended. In addition, a l l imports from Siuo-Soviet bloc countries T 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 ter l ing area CoUtrie and from countries with which Uganda concluded bilateral trade agreements. z7 Imports of these commodities plus some other orts frcm all. other coun- tries are a l s o subJect =to Ind1vidua;l. see Appendix II).

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 from 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 pay- ment is made by crediting an External Account.

80 Payments f o r invisibles

Payments for invisibles to residents of other sterling area countries may be made freely. Specified payments to residents of countzies outs ide the sterling area can be approved by authorize4 banks up to established limits (see Appendix I). Payments f o r invis ib les In all other c&ses are subject to approval from the Exchange Control authorities.

Applications for 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 capital 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 if ied.

Urn Am R, U. S. SI J3, and Yugosiavia. 2f Czechoslovakia, the Federal Republic of Germany, Poland, Sudan,

. 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 in s ter l ing or E.A. s h i l l i n g s and. up to E250 i n notes expressed in other currencies. Travelers in transit, who are not residents of East Africa for exchange control purposes, may take with them foreign currency notes and/or notes expressed an s ter lag area currenc3 other than East African currency, up to the amount which they brought i n t o East Africa et the time of t he i r entry.

9. Exports and export proceeds

Commercial exports axe prohibited by all 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 refi tr lct certain exports to all ether countries to protect wild life and to maintain the standard of exports. From time t o time, export restric- tions Eire a lso applled in respect of goods whlch happen to be in short domestic cupply.

Kenya and Uganda maintain l ists of ccmodities, exports of which are subject to Individual licensing. In addition, exports of comulodities whose ~ P a d e is regulated by t he GtRte trading organizations are SUbJeC+i t o controls.

Export proceeds, i n currencies other than t h o s e of sterling area countries m u s t be surrendered t o an authorized bank withln 5 j x months from the date of exportation.

10. Proceeds from h V i S i b l @ 6

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

1L. RJ Lateral trade agreements

The East African countr ies have no bilateral paylnenLs agrmnentr3, but they have concluded a number of b i l a t e ra l t r d e agreemento. Kenya has bilateral trade agreements with two find member counLrjes ( the U.A.L and YngosLavia) and with six nonmember countries (Bulgaria, Mainland China, Czechoclovakia, Hungary, Poland, and t he 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 in to bilateral t rade 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 bi lateral 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 ists of commodities and do not establ i sh bilateral trade quotas. However, some of t h e ameements in- 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 the Eaet African countries, although controls may be applied In order to prevent unaukhorized capital transfer8 outaide the sterling area.

Capi ta l tranefere and payments from and t o countries outoide the 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 spec i f ied capital transfers Up to established limits i n favor of the residents of countries outside the s t er l ing area (see Appendix 11), but transfers i n respect of all other cnipftal to countries mutside t h e s ter l ing area require approval from the Exchange Office. However, those funds which are not permitted by the Exchange Control Authorities to be tran6ferred outside the sterling 3rea may be paid into 11 Blocked Account

Foreign investment i n East African countries is governed by t h e m respective investment laws y 1 l j ~ 1 1 apply Cqunl ly to any 1nvcl:tor. Under tllLse laws, a foreign nat ional 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 satisfied 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 tax allowances and part la1 or ful l . exemption from payment of custom duties. They muy only be nationnlized or compulsory acquired by or on behalf of the Government of the country i n accordance with various const i tut ional mfegubrds agtitnst arbitrary expropriation of private property, including; the provision that compensation must be paid within a re lat ive ly short period of tune froln t h e date of the t a k i n g over of the enterprise .

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, of sale of the enterprise; principal mid jnterest; of any loans spec- i f i ed in the original certificates; and any cornyensation paid under the pravisjon of the respective investment laws

fnveetorri from countrieb outside the sterling area who are not protccked by the cer t i f i ca te of an approved enterprise can make transfers related to their inveetments, subdect t o approval from the exchange control authorlt ies.

b - 61 -

Specified foreign (and domestic) investments require approval under t he t h e ? identical East African Industrial Licensing Ordinances which are admin- t s t e r ed on an East Africa basis by the East African Indus t r i a l Councll. The purpose of t h e Indus t r i a l l i cens ing on an East Africa basls is “ t o effect t h e orderly promotion and development of mdust r ies manufacturing or seehlng t o nUufac tUe f o r sale, articles in East Africa.” Under t h e East African Indus t r i a l Licensing Ordinances, an appli , ant for a specified investment 111 East Africa can be granted exclusive monopoly of the production f o r a period U P $0 f i v e years after which period supplementary production by WY new investor i s s t i l l subject t o licensing under ordinance for another 1 5 years’

t ies 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 secu r i t i e s only wlth t h e perms- s ion of thc Exchange Control which grants such permission when a t rar lsact lon tskes place on a security market ln East Afr ica and the ~“unds f o r purchase 9f such securlt ES are e i t h e r derived from an Ilxternal Account or are supplled in specri l ed currencies e Income fronl securitles, t h e purchase of‘ which is approved by the exchange control authorities, is remittable . IIolrever, proceeds from t he sa le 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 control au thor i t ies on an ad hoc basis.

- 62 - APPENDIX I 4

I.

Limits up t o which and terms on which payments fo r invisibles t o countries outside the s t e r l i n g area

may be approved by authorized banks

Exchange allocation f o r travel purposes

1. The residents of an East n f r l can 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 hea l th travel, a l loca t ion 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 the Chief Medical Officer; in cases of emergency the Exchange Control Authoriza- t i o n may grant appropriately larger allowances at the i r d iscre t ion . In the Case of business t r a v e l the applicant must be the f u l l y accredited representa- t i v e Of a businem house in an East African country; the representa t ive must be t r ave l ing or1 born fide business djrectly connected with the export of goods from, or the import of goods to, an ER6t African country; the expense of the Journey must be certified as being met bg the firm represent,ed; the applica- tion must cover one pereon only and nL other person m y be traveling on behalf of the same f i r m or company represented 1x1 connection with t he business for which the journey 1s being undertaken.

Specia 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 cer ta in cases when a person is t r ave l ing 0x1 business, banks may authorize up t o E50 of the basic travel allowance for personal spending. In a l l other instances of travel, the Exchange Cantrol rndceb the decisionc.

A travel nr booking agent i n an East African country may, without inqumy and without formality, sel l for E.A. s h i l l i n g s or sterling t o any person in the country, t i c k e t s f o r any travel by any means of t r anspor t anywhere i n the world. Travel agents may provide services outside t h e sterl ing 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 t r a v e l e r s

Inmediately on t h e traveler's return to an 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 or 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 foreign 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,)

4

? - 9 63 * APPENDIX 1

e Authorized banks may approve applications b3 res idents 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, or t h e equivalent i n fo re ign currency, t o meet incidental expenses en route . This f a c i l i t y is not provided by exchange control regulat ions in Tanganyika.

2. Residents of otker s t e r l i ng area countr ies

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 may be allocated exchange on the s ca l e au tho r i zed i n t he 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 al lowances Up t o such amounts as are specif ied by t h e Unit Commander or t h e o f f i c e r authorizing the post ing ,

Civi l ian seamen and c iv i l i an a i r l i ne pe r sonne l may 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 countr ies outs ide t h e sterling area

tanka may a l l o c a t e t o them exchange for travel in count r ies ou ts ide 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 against any foreign currency which i s freely exchange- able f o r s t e r l i n g o r against East African currency notes up t o a maximum of' El00 per person, i n cases of nonresidents who a re 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 or by debi t of an External Account

11. Payments for books, ger iodicals , e tc . , and subscr ipt ions 0 t o s o c i e t i e s and clubs

Residents may buy foreign exchange t o pay fo r s ing le copies of books, per iodicals , etc., or for t he payment of an annual subscriptlon for a per i - odical. Residents may buy foreign exchange t o pay club subscriptions and subscriptions t o learned and t echnica l societies provided thaz t h e umount of the subscr ipt ion per annum, including entrance fees, docs not exceed E100. In Tanganyika, limits are exceeded i n p r a c t i c e a t the d lscre t lon of t h e Exchange Control.

111. Education

Re6tdents IUQY purchase foreign exchange up t o €1700 per scholastic year t o pay the cost of ent rance reg is t ra t lon fees, rnamtenance, and other expenses i n c i d e n t a l t o the education in countr ies outside the Eterling areo. Fees musL be paid d i r e c t l y t o the educutional establishment ooncerned. The bmic travel allowance may be used to supplement any educatlon al locat ion authorized. Fares may be paid local ly i n E A . shillings, b u t m y Incidental expenses incurred in foreign currency en route must; be paid out of the educational or the basic travel al locut ion.

- 64 - APPENDIX I

IV. Insurance

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

(a) the transfer is covered by the authority already granted I n respect of nationals of countries outside t h e s ter l ing area who are regarded as non- residents and who are working jn an East African country;

(b) the premium is due on an exlstrng policy (it I s not a first premium on 8 new policy); and

( c ) the policyholder is not in possesslon or' foreign currency, exempted or otherwise.

v. Ca~nnissions and expenses due to norlresident agents

Commissions may be paid to agents residing in countries outside t h e s t e r l i ng area in respect of imports or exports from sterling are^ countries, and merchanting trade undertaken by t he residents of an East African COuntry in &XM% originating outride the sterling area provided 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 costs incurred i n p3ac- in(: advertisements i n publications in countries outside t h e s te r l ing area. Advertisements should be of benefit t o t he country.

VII. Tourist agency fees

Licensed and registered travel agents, safari firms or hote ls u t i l i z i n g the services of agents i n countries outside the s t e r l i n g area t o obtain boolr- in@ from tourists to v i s i t East Africa. may remit the egency charges or com- missions from such bookings.

- 65 - APPENDIX I1

Limits up t o which and terms on which specified capital t ransfers to countries outside the s te r l ing area may be

approved by authorized banks

1. Emigration allowances

An emigrant (1.e ., a parson who leaves a ster l ing area country to take up permanent residence in a country outside the s ter l ing area) is allowed t o transfer up t o E5,OOO per family u n i t from h i s declared assets as 8 Sett l ing in allowanc3 to the i r new country of' residence. The emigrant's assets which exceed the amount which is permitted t o be transferred as a sett l ing-in d 1 O W - ance, are t o be blocked. h i g r a n t s are not en t i t l ed 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 ravelers ' checks valid fo 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 ter l ing area capital payments arising from promissory or resjduary bequests o r inheritances under the Wills or Intestacies of persons who, at the date Of death, were resident i n an East African country. I n t h e case of Kenya and Uganda the requirement is t h a t the date of Probate or Letters of Adminis- t r a t ion was subsequent to May 12, 1940.

Reuidente are permitted t o make cash g i f t s t o individuals and organiza- tions i n any country outside the ster l ing area 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 a11 East Afri can country for over five years) who is the head of t h e family un l t may send from Kenya and Uganda t o countries outside the sterling area remittances not exceeding 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) the 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 - APPENDIX 11

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

( c ) the remittance is to be made to relieve personal financial hmdship of close reletives, such as parents or parents-in-law;

(a) the application is supported by acceptable and satisfactory docu- rnentary evidence of hardshlp .

Any application to continue the remittance after each twelvelmonth Period should not be approved unless it is re-established to the satis- faction of the bank that the beneficiary’s circumstances are such that the renewal is necessary, In Tnnganyika banks grant agproval liberally.

Persons who are residents for less than f ive years m y tranofer money accumulated as savings. This facility is interpreted l iberally i n Tanganyika.

n b Remittances by nationals of countries outside the sterling area

National8 of countries outside the s ter l ing area who w e emplayed in an East African country may make remittances on the fol lowing conditions:

(a) they have resided In the country fo 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 may be only one resittancc from each f a m d y uni t ;

(e) remittances may on ly be made to the applicant I s country of origin 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 na t iona l of a country outside t h e s ter l lng area, employed (not sclf- employed) in an Fest African country and st 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 ca l ly to take 11p permanent residence i n h i s country of or ig in , but who doeo not apply for eaigration treatment, may transfer the balance of his 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 applicant’s total enoluments earned during his period of employment in an East African country, less the total of a l l sum remitted to countriee outside the s ter l ing area by him during t ha t time, whichever is the leseer amount .